BANK of Japan Governor Kazuo Ueda said on Tuesday the economy was recovering but also showing some signs of weakness, offering a slightly bleaker assessment than in January in a nod to a recent batch of soft data on consumption.
The remarks come ahead of the central bank’s policy meeting next week, where the board will debate whether the outlook is bright enough to phase out its massive monetary stimulus.
Speaking in parliament on Tuesday, Ueda said consumption was weakening for food and daily necessities amid higher prices. But he said household spending was improving moderately on hopes for higher wages ahead.
“Japan‘s economy is recovering moderately, although weakness has been seen in some data,” Ueda said, when asked by a lawmaker about recent soft signs in consumption and capital expenditure.
The assessment was slightly less optimistic than the one shown in the BOJ’s latest quarterly report issued in January, which described the economy as “recovering moderately”.
Ueda offered few clues on how soon the BOJ would end negative rates, a policy that has been in place since 2016.
“We are focusing on whether a positive wage-inflation cycle is kicking off, in judging whether sustainable, stable achievement of our price target is coming into sight,” he said.
“Various data have come out since January and we’ll likely have additional data come out this week. We will look comprehensively at such data, and make an appropriate monetary policy decision,” he said.
Finance Minister Shunichi Suzuki said on Tuesday Japan was not at a stage where it could declare deflation as beaten despite some positive developments such as high wage hikes and record levels of companies’ capital spending.
Japan‘s economy expanded at an annualised clip of 0.4 per cent in the October-December period, narrowly averting a technical recession but weighed by sluggish consumption.
Despite such signs of economic weakness, many market players expect the BOJ to end its negative interest rate policy by April as inflation remains above its 2 per cent target and intensifying labour shortages prod more firms to signal bumper pay hikes.
Sources have told Reuters a growing number of BOJ policymakers are even warming to the idea of ending negative rates at the March 18-19 meeting on expectations of hefty pay hikes in this year’s annual wage negotiations.
Economists see current wage talks, which wrap up on March 13, resulting in an average hike of around 3.9 per cent in annual pay for union workers at major firms – the biggest rise in 31 years.
As part of efforts to sustainably achieve its 2 per cent inflation target, the BOJ currently guides short-term rates at -0.1 per cent and the 10-year government bond yield around 0 per cent. REUTERS
