By Leika Kihara
TOKYO (Reuters) -Financial institution of Japan Governor Kazuo Ueda mentioned the central financial institution may elevate rates of interest subsequent month relying on financial information out there on the time, underscoring its resolve to steadily push up borrowing prices from present near-zero ranges.
Whereas rising import prices from a weak yen might weigh on family spending, rising wages will underpin consumption and maintain the economic system on observe for a average restoration, Ueda informed parliament on Tuesday.
“Our determination on bond-buying taper and rate of interest hikes are two various things,” Ueda mentioned. “There’s an opportunity we may elevate rates of interest at our subsequent coverage assembly, relying on financial, value and monetary information and data out there on the time.”
At its coverage assembly on Friday, the BOJ determined to start out trimming its big bond purchases and announce an in depth plan in July on lowering its practically $5 trillion steadiness sheet, taking one other step towards unwinding its huge financial stimulus.
The choice has heightened uncertainty on whether or not the BOJ may additionally hike short-term charges at its July 30-31 assembly or maintain off till later within the yr to keep away from upending markets.
Ueda mentioned the BOJ was not but absolutely satisfied that inflation will sustainably hit its 2% goal, stressing the necessity to spend “a bit extra time” to scrutinise information earlier than elevating charges once more.
However he mentioned company price- and wage-setting behaviour has clearly modified amid file earnings and a tightening job market.
“The economic system will probably see extra clear indicators of a optimistic wage-inflation cycle” as nominal wages rise, he mentioned.
Ueda supplied no clues on the tempo and dimension of the BOJ’s bond taper plan to be introduced subsequent month. He mentioned the central financial institution will keep away from utilizing its bond-buying operation as a financial coverage instrument, or a way to speak its coverage intention.
The BOJ exited adverse charges and bond yield management in March in a landmark shift away from a decade-long, radical stimulus programme.
With inflation exceeding its 2% goal for 2 years, it has additionally dropped hints that it’s going to elevate short-term charges to ranges that neither cool nor overheat the economic system – seen by analysts as someplace between 1-2%.
In an indication of broadening inflationary strain, the worth Japanese corporations cost one another for companies with excessive labour prices rose 2.8% in April from a yr earlier, BOJ information confirmed on Tuesday, marking the quickest enhance in practically 4 years.
A weak yen complicates the BOJ’s coverage path. Whereas it accelerates inflation by pushing up imported items costs, the following rise in dwelling prices has weighed on consumption and solid doubt on the power of Japan’s economic system.
Many economists count on the BOJ to hike rates of interest to 0.25% this yr, although they’re divided on whether or not it can are available July or later within the yr.