Fumio Kishida backs Bank of Japan’s ultra-loose policy despite Yen’s plunge

Fumio Kishida has signaled his support for the Bank of Japan’s ultra-loose monetary policy despite the yen’s plunge to its lowest real-world level since the 1970s.

In an interview with the Financial Times, the Japanese prime minister said the central bank needs to maintain its policy until wages rise and urged companies that have raised prices to also raise wages.

Kishida said he would continue to “work closely” with Haruhiko Kuroda, ruling out speculation he would end his term as BoJ governor early or apply political pressure to end negative rates.

“At the moment, I’m not thinking about shortening his term,” Kishida said, referring to Kuroda’s 10-year term as governor of the BoJ, which ends next spring. “I will be looking at projected economic conditions for April next year to consider the right person for the job.”

In a signal about Economic challenges in Japan Contrary to other advanced economies struggling to protect the public from raging inflation, Kishida said the country needs to raise wages rather than limit wages.

The government will prepare measures to help companies raise wages even as they move to increase input costs, Kishida said. His comments come amid public concern about rising costs of living and Prime Minister’s popularity plummeted.

The yen, which traded flat on Tuesday morning, fell 0.1% against the dollar to 145.83 yen following Kishida’s comments, close to the low of 145.90 yen touched last month, prompting the Japanese government to intervene to strengthen the currency.

“By passing the price increase, we expect businesses to have some ability to raise wages,” Kishida said. “In the past, raising wages was seen as a cost factor, but in the future, companies need to invest in people for the sake of the economy and for the business itself to grow.”

The BoJThe yen’s policy stance, which helped push the yen to a 24-year low against the dollar, will be offset by government measures to combat inflation and take advantage of the weak yen to prop up. export and tourism.

The prime minister’s comments follow a tumultuous period for saddle and growing speculation that after nearly a decade of steadfast commitment to its ultra-loose policy, global turmoil may finally force the BoJ to blink.

Just before Kishida spoke to the FT, the yen fell to 145.60 against the dollar and within 0.30 from where The Japanese government intervened last month. Such efforts to strengthen the yen, which is worth $20 billion, will not work for long as interest rate differentials between Japan and the United States continue to widen, analysts warn.

Japan has faced similar pressures to the US and Europe due to soaring global food and energy prices. But headline inflation remains relatively low at 3% as there has been virtually no shift from price increases to higher wages. The increase in energy prices has also been partially offset by long-term contracts for large volumes of imported liquefied natural gas from Japan.

The BoJ has argued that underlying consumer demand in the Japanese economy is weak and has predicted that inflation will fall back below 2% next fiscal year.

Companies, especially SMEs that employ 70% of the workforce, have struggled to pass higher costs on to consumers, leading to pressure on profits that make it difficult for them to raise wages.

After decades of persistent deflation, economists say Japan may be on the cusp of a historic transition as the global energy crisis forces businesses to raise product prices, creating pressure on employees to ask for a raise.

“It is difficult to give a figure for what level of inflation is appropriate,” said Kishida. “But I really feel that we won’t be able to maintain a sustainable economy or protect people’s livelihoods without seeing wages rise commensurate with price increases.”


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