TOKYO: Bank of Japan Governor Haruhiko Kuroda on Tuesday (Jan 25) vowed to keep monetary policy ultra-loose and said the central bank was mindful of the risk inflation could shoot up before wages begin to rise.
Prime Minister Fumio Kishida blamed recent rising prices in Japan on global commodity inflation, stressing the need to boost wages and household income to achieve solid economic growth.
The policymakers made the remarks as the major business lobby and unionists kicked off annual spring wages talks, due to be wrapped up in March.
The central bank is counting on wage hikes to help meet its 2 per cent inflation target in a stable manner, while the wage talks will also be a key gauge of whether Kishida can achieve his pledge to stoke a virtuous cycle of growth and wealth distribution.
"It's desirable to create an environment in which companies can pass on rising costs and raise wages, so that increasing consumption spurs economic growth and inflation," Kishida told parliament on Tuesday.
The remarks came after an opposition lawmaker grilled Kishida and Kuroda in parliament, saying rising raw material prices could be stoking "bad inflation", where wages fail to gain enough to make up for the rising cost of living for households.
The prime minister said it was hard to draw a line on what constituted "good" or "bad" inflation, and declined to say when Japan could achieve the type of inflation considered desirable.
BOJ's Kuroda said he did not think Japan was experiencing an "abnormally" weak yen that was pushing up import costs excessively.
"The BOJ will continue its ultra-easy policy so improvements in corporate profits and the economy prop up wages and gradually accelerate consumer inflation," Kuroda said.
"We remain vigilant to the risk prices may shoot up before wages begin to rise, or how (rising raw material costs) could hurt smaller firms. We must keep an eye out on these risks, while maintaining our current easy monetary policy," he said.
Kishida has been piling pressure on firms to raise wages as part of efforts to prop up growth and distribute more wealth to households. He has called for uniform wage hikes of 3 per cent or more from companies that have been profitable.
Masakazu Tokura, chairman of Keidanren, Japan's biggest business lobby, said companies must set wages reflecting their own situation rather than in a uniform manner as impacts from COVID-19 make profits uneven among sectors.
"Given the so-called 'K-shaped recovery' amid the prolonged pandemic in which gaps of corporate performance grow wider, it has become more important than last year for each company to respond in accordance with their own situation," Tokura said.
"I hope many firms keep momentum on wage hikes, with labour and management taking a step towards achieving sustainable capitalism and virtuous cycle of growth and distribution."