BOJ’s Kuroda sees progress on prices while sticking with easing

Bloomberg

Bank of Japan (BOJ) Governor Haruhiko Kuroda pointed to some positive changes that suggest progress is being made toward his stable inflation target while making clear that policy tightening still isn’t an option for now.
Several data sets are showing rising inflation expectations and a higher tolerance for price increases among households, the governor said in a speech. “This can be regarded as an important change from the perspective of aiming to achieve sustained inflation,” he said.
Still, with Japan recovering from the pandemic, the central bank must continue with monetary stimulus, Kuroda said. Unlike in the US and Europe, where the Federal Reserve and ECB are raising interest rates or gearing up for action to tame price gains, Japan lacks sufficient wage growth, he added.
“In this situation, monetary tightening is not at all a suitable measure. The top priority for the bank is to persistently continue with the current aggressive monetary policy” to firmly support economic activity,” Kuroda said.
Japan could still stimulate aggregate demand as it wasn’t yet facing a trade-off between prices and the economy, he said.
One data point cited by the BOJ chief was put together by Tsutomu Watanabe, one of the country’s leading inflation researchers. Watanabe’s survey of 20,821 people in several major economies showed 56% of Japanese would put up with a 10% price increase in a regularly purchased supermarket item.
, compared with 43% in the previous survey last year.
Kuroda suggested forced savings during the pandemic helps explain how households have become more accepting of price rises.
Still, the bank will continue to take a strong stance on easing to ensure a favorable economic environment in which rising wages together with the higher price expectations and tolerance lead to sustained inflation, he added.