Tokyo, Japan – In a speech delivered to business leaders in Naha, southern Japan, Bank of Japan (BOJ) board member Asahi Noguchi emphasized the importance of maintaining ultra-loose monetary policy to support wage growth and increase inflation to its 2 percent target.

Noguchi acknowledged that core consumer inflation, which has consistently exceeded 2 percent for over a year, is expected to decline below that level by September or October due to the diminishing impact of previous increases in raw material costs. However, he highlighted the significance of wages and services prices in determining whether inflation will rebound above 2 percent and sustain that level.

A known advocate of aggressive monetary easing within the board, Noguchi stressed that the primary focus for the BOJ is to ensure that the budding signs of wage growth become a sustained and robust trend. He also expressed concerns about potential risks to the Japanese economy, such as uncertainty surrounding global economic and market developments.

Noguchi’s remarks align with those made by fellow board member Seiji Adachi, echoing the caution of the BOJ in prematurely scaling back its extensive stimulus program. The BOJ currently employs yield curve control (YCC), setting a -0.1 percent target for short-term interest rates and capping the 10-year bond yield at approximately 0 percent, aiming to reflate growth and inflation.

Despite exceeding its inflation target, the BOJ faces speculation that it will tweak YCC due to criticisms that the policy distorts market pricing and hurts financial institutions’ profitability. However, BOJ Governor Kazuo Ueda emphasizes the necessity of maintaining ultra-low rates until there is substantial evidence of sustained wage growth, supporting Japan’s sustainable achievement of the 2 percent inflation target.

In conclusion, the Bank of Japan remains committed to its ultra-loose monetary policy, recognizing the importance of wages in driving inflation. The central bank aims to ensure that wage growth becomes a consistent and strong trend, while monitoring potential risks to the economy. The BOJ’s cautious approach underscores the consideration given to maintaining its extensive stimulus program, as it seeks to support sustainable economic growth and achieve its inflation target.