BOJ policymaker Nakamura cautions against early monetary tightening.

Bank of Japan Board Member: Premature to Tighten Monetary Policy

By Leika‍ Kihara

TOKYO (Reuters) – ‍Bank of Japan board member Toyoaki Nakamura emphasized on Thursday that it was ​too early to tighten ‍monetary policy. He argued that recent increases in ‌inflation‌ were primarily driven by higher import costs‍ rather ⁢than wage gains.

While many firms⁤ raised pay this year, Nakamura expressed⁤ uncertainty ⁣about whether smaller companies can earn enough profits to⁤ continue hiking wages in the future. As a former executive ⁣of electronics giant Hitachi Ltd, he cautioned that tightening monetary policy before rising prices ​are‍ accompanied ‍by higher wages would negatively impact domestic demand and corporate profits.

In a speech to business leaders in the ⁣city of Gifu in central‍ Japan, Nakamura⁣ stated, “Sustainable, stable achievement of our 2% ‍inflation isn’t in sight yet.‍ We therefore need more time before shifting to monetary ⁢tightening.”

Overseas Risks and Differing Opinions

Nakamura also highlighted‌ the potential risks to​ Japan’s ⁤economic outlook, including recent weak signs in China’s economy and the potential fallout from aggressive U.S. interest rate hikes.

His remarks contrasted with those of another board‍ member, Naoki Tamura, who ‌stated on Wednesday that ⁤Japan’s inflation was​ “clearly in sight” ​of the central bank’s target. This​ suggests that​ there is no consensus within the ⁣nine-member board on how soon the Bank of ⁣Japan (BOJ) can ⁣scale back its massive monetary ‌stimulus.

BOJ’s Monetary Policy and Inflation Target

Under its yield curve control (YCC) policy, the BOJ guides short-term interest rates at minus 0.1% and the 10-year government bond yield around 0% ‌to reflate economic growth and ⁤sustainably achieve ⁣its 2% inflation target.

With ⁢inflation having exceeded its target for⁣ the 16th straight month in July, markets are eagerly awaiting clues from BOJ policymakers on how ⁤soon the central bank ⁣could take‌ bolder⁣ steps toward phasing out its radical ⁤stimulus.

BOJ Governor Kazuo Ueda has previously stated that the central bank must maintain⁢ ultra-low rates until ​there is more evidence that Japan’s inflation can sustainably hit 2%, backed by solid consumption ⁢and wage growth.

(Reporting by Leika Kihara; Editing‌ by Christian Schmollinger and Shri Navaratnam)

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