Bank of Japan Governor Kazuo Ueda, in his statement on Tuesday, acknowledged the ongoing economic recovery but also noted some areas of concern, presenting a slightly more cautious view than in January. This adjustment in assessment is attributed to recent soft data on consumption.
Ueda, speaking in parliament, pointed out a weakening trend in consumption, particularly for food and daily necessities, influenced by rising prices. However, he also highlighted moderate improvement in household spending, driven by expectations of higher wages.
In response to a lawmaker's inquiry about recent signs of weakness in consumption and capital expenditure, Ueda characterized Japan's economy as recovering moderately, though acknowledging weaknesses in some data. This assessment is a shade less optimistic than the January quarterly report, which described the economy as "recovering moderately."
Ueda did not provide clear indications of when the Bank of Japan might end its negative interest rate policy, a measure in place since 2016. He emphasized the importance of assessing whether a positive wage-inflation cycle is initiating, a key factor in determining the sustainable achievement of the price target.
Finance Minister Shunichi Suzuki echoed Ueda's sentiments, stating that Japan has not overcome deflation despite positive developments like significant wage hikes and record levels of capital spending by companies.
Japan's economy narrowly avoided a technical recession, expanding at an annualized rate of 0.4% in the October-December period, with sluggish consumption being a notable factor.
Despite economic challenges, there is anticipation in the market that the Bank of Japan may conclude its negative interest rate policy by April. This expectation is fueled by inflation levels surpassing the 2% target and increasing labor shortages leading more companies to signal substantial pay increases.
Sources have indicated that a growing number of BOJ policymakers are considering ending negative rates at the upcoming March 18-19 meeting, driven by expectations of significant pay hikes during this year's annual wage negotiations, which conclude on March 13.
Economists predict an average wage hike of approximately 3.9% in annual pay for union workers at major firms, marking the most substantial increase in 31 years.
As part of its strategy to achieve a sustainable 2% inflation target, the Bank of Japan currently guides short-term rates at -0.1% and the 10-year government bond yield around 0%.
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