A board member of the Bank of Japan said on Sept. 5 (Thursday) that if companies continue to increase spending and wages, the nation’s central bank would keep raising interest rates.
“If inflation moves roughly in line with forecasts, and companies continue to boost spending, wages and pass on costs through price hikes, then we need to adjust the degree of monetary easing further,” said Hajime Takata at a speech to business leaders in the city of Kanazawa.
“The stock and currency market saw big volatility in early August and the fallout continues. As such, we need to scrutinize market developments and their impact for the time being,” he added.
The BOJ ended Japan’s radical policy of negative interest rates in March and raised short-term rates to 0.25 percent in July on the view the economy was making progress toward durably achieving its 2 percent inflation target.
The most recent rate hike was accompanied by moves to prop up the Japanese yen, which saw it gain value against the dollar. In addition, the changes in policy triggered a significant downturn in global stocks, as the widespread practice of “carry trade” investments was affected by Tokyo’s moves.
Success
You are now signed up for our newsletter
Success
Check your email to complete sign up
BOJ Governor Kazuo Ueda has signaled that the BOJ was ready to raise interest rates further if inflation stays around 2 percent in coming years accompanied by solid wage gains.
While U.S. and European central banks are considering or moving toward rate cuts, the effect of their past aggressive monetary tightening could appear with a lag and weigh on Japan’s economy, Takata said.
The difference in monetary policy stance between that of the BOJ and other central banks could also cause market turbulence, Takata said. “As such, we must carefully monitor domestic and overseas developments for the time being,” he said.
Reuters contributed to this report.
