By Leika Kihara
KOCHI, Japan (Reuters) -Bank of Japan policymaker Junko Nakagawa said on Thursday the central bank must maintain ultra-loose monetary policy for the time being due to uncertainty over prospects for achieving the bank’s 2% inflation target in a sustainable fashion.
An increasing number of Japanese companies were raising prices and wages, Nakagawa said, adding that there was a chance inflation could accelerate more than initially expected.
But there was also a risk inflation could slow once the pass-through of higher costs moderate, she said.
While the job market is tightening, the outlook for wage growth depends largely on corporate earnings, Nakagawa said, stressing the need to stay vigilant to economic risks such as slowing overseas growth.
“We’re seeing some positive developments in Japan’s economy with signs of change in corporate price and wage-setting behaviour,” Nakagawa said in a speech to business leaders in the city of Kochi.
“But we’re not at a stage where we can judge that Japan has achieved our price target in a stable, sustainable fashion.”
The remarks echo those of BOJ Governor Kazuo Ueda, who has stressed the need to “patiently” maintain ultra-low interest rates to ensure Japan achieves 2% inflation driven by solid domestic demand and wage growth.
Japan’s core inflation hit a four-decade high of 4.2% in January and remained above the BOJ’s 2% target for 16 straight months in July, as more firms pass on higher raw material costs.
But the government has refrained from officially declaring an end to deflation, arguing that doing so requires not just underlying price rises but clear signs that Japan won’t return to periods of price falls.
(Reporting by Leika Kihara; Editing by Tom Hogue and Kim Coghill)
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