- While global commodity and energy inflation is pushing up prices of some goods in Japan, such cost-push inflation will be short-lived unless accompanied by higher wages, Nakamura said.
- Sustainable wage growth needed to ponder policy tweak.
- Japan has not been immune to the impact of global commodity price rises with wholesale inflation hitting record highs.
China’s “zero-COVID” restrictions could weigh on world growth by prolonging supply chain disruptions and global inflationary pressures, a Bank of Japan policymaker said, warning of the broadening fallout from rising Omicron variant cases.
Tightening monetary policy
Board member Toyoaki Nakamura also said it was premature for the BOJ to tighten monetary policy, as inflation and wage growth remain subdued compared with other economies.
“I don’t think conditions have fallen into place for Japan to modify monetary policy,” Nakamura told a news conference.
“If we raise interest rates now or before wages pick up, we would be taking away from companies money that would otherwise have been used to raise pay,” he said on Wednesday.
A former executive at Japanese electronics giant Hitachi Ltd, Nakamura said supply chain disruptions won’t disappear easily partly as China – the world’s factory – maintains strict curbs on economic activity to combat the pandemic.
“There’s a risk China’s ‘zero-COVID’ policy amid widening Omicron infections could weigh on the global economy, as well as prolong global supply chain disruptions and inflationary pressures,” he said.
His remark follows a warning last month by International Monetary Fund head Kristalina Georgieva that China should reassess its zero-COVID approach to the pandemic.
“Semiconductor chips will probably be in short supply throughout this year,” Nakamura said.
Japan’s long-term interest rates have crept up on market speculation the BOJ could follow in the footsteps of other major central banks executing or eyeing rate hikes.
While global commodity and energy inflation is pushing up prices of some goods in Japan, such cost-push inflation will be short-lived unless accompanied by higher wages, Nakamura said.
Global commodity prices
There is also uncertainty over how quickly companies will pass on rising raw material costs to households, he said.
“We’ll patiently maintain our ultra-easy monetary policy until wages begin to rise sustainably,” Nakamura said.
Japan has not been immune to the impact of global commodity price rises with wholesale inflation hitting record highs. But core consumer prices rose just 0.5% in December from a year earlier, well below the BOJ’s 2% target, as slow wage growth weighs on consumption and discourages firms from raising prices.
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