Fuel surge could push inflation in Japan near BOJ’s 2% target, policymaker says

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A man wearing a protective mask walks past the Bank of Japan headquarters amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon

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  • Inflationary pressures in Japan will remain strong in the short term
  • Wage growth must accompany inflation – BOJ Nakagawa
  • Nakagawa reiterates BOJ’s determination to maintain ultra-simple policy
  • Japan’s economy will continue to recover – Nakagawa

TOKYO, March 3 (Reuters) – Consumer inflation in Japan could briefly approach the central bank’s elusive 2% target as geopolitical risks drive up energy costs, it said on Thursday. a central banker, a sign of the widening fallout from the crisis in Ukraine. .

But Junko Nakagawa, a member of the Board of Directors of the Bank of Japan (BOJ), reiterated the bank’s determination to maintain extremely loose monetary policy, stressing that wages must rise in line with inflation for such hikes to continue. prices are sustainable.

“For now, inflationary pressure will remain strong, mainly for energy, food and industrial goods,” Nakagawa said in a speech, adding that annual core consumer price growth could “briefly increase by nearly 2%”.

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“Even if that happens, what’s important is to look at the factors (that push prices up) and determine whether Japan’s economic fundamentals are strong enough for such price increases to be sustainable,” she said.

While soaring commodity costs drove up wholesale prices in Japan, core consumer inflation came in at 0.2% in January due to weak household spending and wage growth.

But many analysts expect core consumer inflation to accelerate towards the BOJ’s 2% target from next month as the slowdown in mobile phone fee cuts continues. dissipates and rising oil costs drive up gas and electricity bills.

More companies appear to be passing on higher raw material and labor costs to consumers, Nakagawa said, adding that the BOJ should be aware of the risk that the pass-through could accelerate more than originally planned.

Nakagawa’s remarks increase the chances that the BOJ will improve its inflation forecast during a quarterly review of its projections in April. Under current forecasts, he expects core consumer inflation to hit 1.1% in the fiscal year beginning in April.

In a first speech by a BOJ policy official since Russia invaded Ukraine, Nakagawa said Japan’s economy will continue to recover on the back of strong external demand and an expected rebound in consumption as the impact of the COVID-19 pandemic subsides.

“Global financial markets remain nervous due to escalating tensions in Ukraine. We are closely monitoring developments,” she said.

Japan’s heavy reliance on fuel and food imports leaves its economy vulnerable to rising commodity prices, adding to the woes of policymakers who are already worried about the impact of the pandemic on the growth.

Given Japan’s relatively low inflation and fragile recovery, BOJ Governor Haruhiko Kuroda has repeatedly said the bank has no intention of following in the Federal Reserve’s footsteps. US in its tightening policy.

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Reporting by Leika Kihara Editing by Chang-Ran Kim and Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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