By Leika Kihara
FUKUSHIMA, Japan (Reuters) -Bank of Japan (BOJ) board member Junko Nakagawa said on Wednesday the central bank must maintain ultra-loose monetary policy for the time being, as the economy has yet to sustainably achieve its 2% inflation target.
Nakagawa said the world’s third-largest economy is expected to continue recovering as the impact of the COVID-19 pandemic fades, allowing more companies to pass on rising raw material costs to households.
She also said price hikes could intensify if corporate inflation expectations overshoot, which was among “major risks” for Japan’s price outlook.
But Nakagawa also pointed to “high uncertainty” on how much companies, particularly smaller firms, will raise wages.
“There’s a chance inflation may come under downward pressure if wage hikes don’t spread as much as expected,” she told a speech to business leaders in Fukushima.
“It’s necessary to support the economy with current monetary easing for the time being,” she added.
Markets are rife with speculation the BOJ could phase out its massive stimulus by tweaking its bond yield control policy when incumbent governor Haruhiko Kuroda’s second five-year term ends in April.
Kazuo Ueda, the government’s nominee to succeed Kuroda, stressed the need to support the economy with ultra-loose policy for now, saying last week that a shift to tighter policy would only come when Japan’s trend inflation heightens significantly.
(Reporting by Leika Kihara; Editing by Chang-Ran Kim and Edmund Klamann)
