By Leika Kihara
TOKYO (Reuters) – Bank of Japan Governor Kazuo Ueda said the country’s corporate pricing behavior was changing and could be more effective than expected in pushing the High inflation, which suggests the economy is making steady progress towards its 2% price target.
But he reiterated the central bank’s determination to keep policy ultra-loose to ensure firms raise wages enough to offset the burden
“It is still a long way from achieving our 2% inflation target on a sustained basis.” There is a distance. Therefore, we will patiently maintain our monetary accommodation,” Ueda told parliament.
He added that by supporting the economy, the central bank aims to create a positive cycle in which inflation-adjusted wages start to rise.
The Bank of Japan is expected to keep interest rates ultra-high – sources have told Reuters to ease policy next week as it focuses on supporting a fragile economic recovery to sustainably meet its price target.
Japan’s core consumer inflation hit 3.4% in April, topping the Bank of Japan’s 2% target for more than a year, as companies continued to pass on rising raw material costs to households.
Inflation-adjusted real wages fell 3.0% in April, marking the ) consecutive monthly decline, suggesting rising living costs are squeezing household purchasing power.
The economy has held up so far, growing at an annualized rate of 2.7% in the first quarter on strong capital spending.
Average bonus payments this summer could rise 2.4% from a year earlier, a positive sign for consumption, think-tank Teiko Data Bank said on Friday.
But there is uncertainty over whether the company will continue to raise wages after agreeing with unions to a level not seen in 30 years.
Ueda said the BOJ now expects core consumer inflation to slow below the bank’s 2% target in the second half of the fiscal year.
Inflation outlook. What matters is corporate pricing behavior, which has somehow exceeded expectations,” he said. He has drawn criticism for distorting markets and squeezing banks’ profits.
