Japan's new central bank governor Kazuo Ueda said he needed more time to assess whether wage growth would be sustainable enough to keep inflation stable at the bank's 2% target. This suggests he will not be in a rush to bring back his big boost.
Ueda faces challenges as slowing global growth undermines the prospect of continued increases in inflation and wages, a prerequisite for phasing out his predecessor's controversial fiscal stimulus.
"When looking at the current economic, price and financial developments, it is appropriate to maintain control of the yield curve for the time being," Ueda said in a press conference.
If the BOJ sees that it can hit its price target, it may need to normalize monetary policy, he said. Markets are rife with speculation that the BOJ may soon end its yield curve control (YCC), a policy that caps 10-year bond yields around zero, following criticism that is increasing.
In a parliamentary confirmation hearing in February, Ueda emphasized the need to maintain easy monetary policy to ensure Japan sustainably reaches the BOJ's 2% inflation target supported by wage growth.
But with inflation above target, many analysts expect the BOJ to change or end the YCC, a policy that combines a 0.1% target for short-term interest rates and a 0% cap on 10-year bond yields, as soon as this quarter.
Japan's long-delayed inflation and wage growth are beginning to show signs of recovery. After hitting a 41-year high of 4.2% in January, core consumer inflation remained above 3% as more firms raised prices in response to rising raw material costs.
To offset rising household living costs, major firms have offered wage increases of nearly 4% this year in annual labor talks, the fastest rate in about three decades.
Growing concerns of a US recession are among the obstacles for Japan's export-dependent economy. While the end of Covid-19 restrictions is supporting consumption, some analysts warn that recent increases in the prices of daily necessities could also affect spending.
Ueda will chair its first policy meeting on April 27-28, when the board produces new quarterly growth and price forecasts extended through fiscal 2025.
Markets are focused on whether the board projects inflation accelerating toward, or even hitting, 2% in fiscal 2024 and 2025. Under current forecasts, the BOJ expects core consumer inflation to hit 1.6% for the fiscal year that starts this month and accelerate to 1.8 % in the following year.
