Bank of Japan (BoJ) board member Toyoaki Nakamura expressed skepticism on Thursday about the sustainability of wage growth in Japan, underscoring the cautious approach needed for monetary policy adjustments. His remarks highlighted persistent challenges in achieving stable economic growth and hitting the central bank’s 2% inflation target.
Key Highlights from Nakamura’s Comments
Nakamura acknowledged Japan is at a critical juncture, requiring careful assessment of data to adjust monetary support based on economic improvements.
While the global outlook is buoyed by hopes of a US soft landing, he noted emerging signs of economic slowdown globally.
Japan’s economic recovery remains moderate but exhibits weaknesses, with sluggish consumption and signs that inflation may miss the 2% target beyond fiscal 2025.
Structural changes are necessary for Japan’s economy to achieve stable inflation, a process Nakamura believes will take considerable time.
He cited risks such as delayed capital expenditure (capex) and restrained consumer spending, which could weigh on economic growth.
Nakamura emphasized factors like smaller firms’ profitability, cost pass-throughs, and household spending as pivotal in determining future policy moves.
Monetary Policy Outlook
Nakamura reiterated that adjustments to the BoJ’s accommodative monetary policy will be gradual, contingent on the economy moving toward a stable growth trajectory. While progress in corporate investments and wage hikes remains critical, he projected his own growth forecast below the board median due to ongoing economic uncertainties.
Market Reaction
The USD/JPY pair pared earlier losses following Nakamura’s dovish comments, trading at 150.42 during the session. Despite trimming its decline, the pair remains down 0.11% on the day, reflecting persistent caution among traders.
Implications
Nakamura’s cautious tone reinforces expectations of a slow and measured approach by the BoJ in tightening monetary policy. His acknowledgment of structural challenges and potential delays in economic momentum may temper market expectations of aggressive action, keeping the Yen sensitive to domestic and global economic shifts.
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