Vow – Japan slows inflation without raising interest rates

Newswire

And the Japan has been able to lower the inflation with a controversial but well-thought policy. Proof is a latest Reuters poll which shows that the core consumer inflation in Tokyo likely grew in November but at slower pace than the month before.

Tokyo: Japan has been under attack launched by Western media for maintaining ultra-loose monetary policy, meaning that the Bank of Japan (BOJ) hasn’t joined the bandwagon and decided against raising interest rates. You can’t forgive such a crime – going against the sermons of top international financial institutions and central banks.

The core consumer price index (CPI) in Tokyo, a leading indicator of nationwide inflation trends, was expected to have climbed 2.4 per cent in November from a year earlier, according to the median estimate of 16 economists, mainly thanks to falling fuel prices and slower food price increases. That would follow a 2.7pc increase in October.

It also means that Japan may be the first developed economy to reach the 2pc inflation target, much earlier than the US, the UK and others, which have gone for rate hikes.

“Although government subsidies have been halved, electricity and other prices are expected to fall again as crude oil prices peak out, and the momentum of food price hikes is slowing,” said Shunpei Fujita, a deputy chief researcher at Mitsubishi UFJ Research and Consulting.

Although the BOJ has maintained ultra-loose monetary policy, many market players expect the Japanese central bank to end both yield curve control (YCC) and its negative rate policy next year with inflation exceeding its 2pc target for more than a year.

Economists in the poll also expected the first month-on-month contraction in household spending in three months in October, squeezed by price pressures.

Household spending likely dropped 0.2pc in October from the previous month and declined 3.0pc from the same month a year earlier, according to the poll.

Meanwhile, the poll also estimated Japan’s current account balance would be a surplus of 1.90 trillion yens ($12.83 billion) in October following September’s 2.72 trillion yens.

The government will release the Tokyo CPI data on Dec 5 at 8:30 am JST (Dec 4 at 2330 GMT). Household spending data is due at 8:30 am on Dec 8 (Dec 7 at 2330 GMT) and the current account data will be available at 8:50 a.m. on Dec 8 (Dec 7 at 2350 GMT).

Japan has yet to achieve price gains driven by higher wages with the recent rise in inflation driven by cost-push factors, Bank of Japan board member Asahi Noguchi said on Saturday, suggesting it was premature to retreat from ultra-loose monetary policy.

“It’s true the impact of elevated global inflation is reaching Japan’s economy with consumer inflation exceeding the BOJ’s 2pc target since the spring of 2022,” Noguchi said, according to the text of his speech posted on the BOJ’s website.

“But the rise (in inflation) is mostly due to cost-push factors amid higher import prices,” contrary to the wage-driven price increases seen in the United States and Europe, he said.

Read more: Japan readies for another wage hike which will give much-needed boost to household spending

“To achieve our 2 per cent inflation target, we must see price rises backed by sustained wage increases,” Noguchi said.

“While annual spring wage negotiations this year achieved wage hikes unseen in 30 years, we’ve only just reached a stage where the possibility of achieving our target has come into sight,” he said.

BOJ officials, including Governor Kazuo Ueda, have repeatedly stressed the need to maintain ultra-loose policy until sustained achievement of 2pc inflation, backed by durable wage increases, is in sight.