Wage growth momentum is biggest focus for Japan economy, BOJ says

Japan must work on boosting wage growth to prepare the road for sustained inflation, according to Bank of Japan board member Asahi Noguchi.

Noguchi, renowned for his reflationist beliefs, made the remarks in an address to business executives in Niigata, north of Tokyo, describing the more than 3% pay raise agreed upon earlier this year as “important.”

“The important question today is whether this (wage rise) pace will be sustained in the future. For the time being, the BOJ’s objective is to realize it through prudent monetary easing,” Noguchi added.

Japan’s wage patterns, which have been virtually flat over the last three decades since the asset bubble burst, are widely followed by global financial markets, with the BOJ emphasizing that sustainable pay gains are required before the country’s huge monetary support can be phased off.

According to Noguchi, household inflation expectations are continuously growing, but if wage growth lags behind price increases, consumers will be forced to cut back on spending.

He predicted that consumer inflation will drop in the second half of this fiscal year as the impact of high import bills fades.

The Bank of Japan uses its yield curve control (YCC) strategy to reflate GDP and inflation by targeting short-term interest rates at -0.1% and capping 10-year bond yields at roughly 0%.