By Leika Kihara
TOKYO (Reuters) -Bank of Japan board member Junko Nakagawa on Wednesday warned of risks to the country’s fragile economy such as the chance of rising living costs hurting household spending, highlighting the need to keep monetary policy ultra-loose for the time being.
While robust overseas demand and the weak yen have boosted manufacturers’ profits, supply disruptions caused by China’s strict COVID-19 lockdowns have hurt Japanese exports and output, Nakagawa said.
Domestic consumption is picking up as the pandemic’s impact subsides, though the fallout from a broad range of price hikes for daily necessities clouds the outlook, she said.
“For the economy to recover, it’s crucial that the damage to consumption from price rises remains minimum,” Nakagawa said in a speech to business leaders.
“It’s true there is uncertainty over our basic scenario projecting a moderate increase in consumption,” backed by a tight job market and rising household income,” she said.
While consumer inflation exceeded the BOJ’s 2% target for several months, that alone would not be enough for the central bank to withdraw stimulus, Nakagawa said.
“We must continue with monetary easing to sustainably and stably achieve our inflation target, backed by a positive cycle accompanied by wage growth,” she said.
The BOJ has pledged to keep monetary policy ultra-loose to support a fragile economic recovery, remaining an outlier among a host of central banks raising interest rates to combat soaring inflation.
Japan’s core consumer prices rose 2.4% in July from a year earlier, marking the fastest pace in seven-and-a-half years, driven by fuel and raw material prices and adding to the cost of living for households yet to see significant wage gains.
(Reporting by Leika Kihara; Editing by Tom Hogue & Simon Cameron-Moore)
