By Leika Kihara
TOKYO (Reuters) -Japan is seeing early signs of change in the public’s long-held perception that wages and inflation won’t rise much, central banker Hajime Takata said, suggesting conditions for phasing out the bank’s massive stimulus are slowly falling into place.
Policymaker Takata stressed the need to maintain ultra-loose monetary policy for the time being, as slowing global growth was heightening uncertainty on whether the Bank of Japan’s (BOJ) 2% inflation target was sustainably achievable.
Inflation has exceeded the 2% target for more than year, prompting market speculation that the BOJ will soon dismantle the radical stimulus programme of former Governor Haruhiko Kuroda.
Takata suggested that a slowdown in China, the world’s second largest economy, could affect global systems.
Speaking at a news conference later Wednesday, he was also cautious about ditching the BOJ’s negative interest rate policy, saying that such consideration should be made when the central bank faced the possibility of the economy facing upside risks.
Sustainable inflation at the bank’s target was still some distance away and it takes a year to determine the trend for prices and wages, he added, bolstering the view that the central bank will not rush into ending monetary stimulus.
In an earlier speech, he said he believe Japan’s economy was “finally seeing early signs” of achieving the 2% target.
Asked by reporters about the weak yen, Takata said the overseas economy tended to determine currency trends.
CHINA IMPACT
Takata, a former top economist, earlier said there were signs of changes in corporate price and wage-setting behaviour that were pushing up goods and service prices, pointing to broadening inflationary pressure in the world’s third-largest economy.
While recent inflation was driven mostly by higher import costs, the increase in prices prodded many companies to hike pay to compensate employees for rising living costs, he said, adding that such wage increases could continue into next year.
The BOJ needed to patiently maintain its current monetary stimulus but also “to respond nimbly against uncertainties as we’re seeing early signs of a positive cycle emerging” between wages and inflation, he said.
Two other BOJ board members earlier gave diverging views on how soon the central bank should consider scaling back its radical stimulus.
Japan’s core inflation hit 3.1% in July, exceeding the BOJ’s 2% target for the 16th straight month. Firms have also promised wage hikes unseen in three decades, bolstering the case for a retreat from decades of ultra-loose monetary policy.
BOJ officials have said the central bank must keep interest rates ultra-low until robust domestic demand and sustained wage growth replace rising import costs as key drivers of inflation.
(Reporting by Leika Kihara; Additional reporting by Tetsushi Kajimoto and Takahiko Wada; Editing by Tom Hogue, Lincoln Feast and John Stonestreet)
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