July 28, 2022 - 11:54 AM 215 views
As the recovery is shaky and wage growth is unpredictable, the Bank of Japan (BOJ) must assist the economy through monetary easing, according to Masayoshi Amamiya, deputy governor of the central bank, on Thursday.
Not a brief increase to that level, but average inflation of 2 percent, is what we're striving for.
We will examine a wide range of data, the price forecast, the production gap, inflation expectations, and pay changes in order to evaluate the sustainability of inflation.
It's crucial to have a positive cycle where inflation and salaries rise together.
While nominal interest rates are kept low, real interest rates in Japan are declining as household inflation expectations rise.
Since there is currently little chance of achieving our 2 percent inflation target sustainably, we must maintain our strict control over maintaining cheap monetary conditions.
Through an easy monetary policy, the BOJ will aim for consistent, stable price target achievement that is complemented by wage increases.
Although the consumption recovery is becoming more evident, the recent increase of Covid inflation cases is concerning.
Because of rising energy and food prices, consumer sentiment is deteriorating.
Corporate profits remain elevated as a whole due partly to impact of weak Yen.
The economy and consumer spending may suffer if raw material prices remain high for an extended length of time and wage increases do not keep pace with inflation.
BOJ must be alert to changes in the economy's prices and the influence of financial and FX movements.
The trend in medium-term real interest rates is downward, which strengthens the impact of our monetary easing.
To raise consumption in a sustainable manner, nominal salaries must increase more quickly than inflation.
Given the economic recovery and the tightening job market, wages should increase next year at a rate that is higher than consumer inflation.
The Market Reaction
In response to the aforementioned remarks, the USD/JPY fell further, trading at 135.22, down 0.96 percent on the day. As the post-Fed sell-off continues, the spot dropped more than 100 pips in the previous hour.
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