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(MNI) Tokyo
TOKYO (MNI)

Bank of Japan officials are focused on whether inflation expectations among corporates and households have strengthened enough, and can be sustained amid high geopolitical uncertainty and energy costs, to cautiously look at fresh policy options, MNI understands.

TANKAN, WAGES

A clearer picture will come in the March Tankan survey due out on April 1, but it is expected that corporate views on the deflationary mindset are changing, which could lead to wage hikes, reinforcing medium- to long-term inflation expectations.

Higher wages are the key to meeting the BOJ's 2% sustained inflation target and if companies, particularly smaller ones, follow through with more pay the BOJ could see the change as sustained and then consider policy options.

THE CURVE

BOJ officials want to avoid getting behind the curve on inflation, but still seek a cautious approach because current higher prices are driven by energy costs that are seen as cost-push, not demand-pull, and therefore not sustainable, MNI understands.

BOJ officials, past and present, said the BOJ however needs to avoid a situation facing the U.S. Fed of potential rapid rate hikes to tame high inflation that could bring market volatility.

HOUSEHOLDS

Households too are key because their spending habits will be shaped by any gains in retail prices even if wages are increased, which would also have a major effect on medium- to long-term inflation expectations.

If high retail prices were accepted by households, it will strengthen a virtuous cycle from CPI increases to wage hikes and then to longer-term inflation expectations.

Japan’s March Tokyo CPI rose 0.8% y/y, according to data reported on Friday, showing the impact of higher energy costs.

Also on Friday, Bank of Japan Governor Haruhiko Kuroda and Finance Minister Shunichi Suzuki warned that rapid forex moves are undesirable, highlighting how policymakers are looking at the yen and 10-year government bond yield as well as inflation in judging any policy responses, see: MNI BRIEF: BOJ's Kuroda, MOF's Suzuki Want Orderly Yen Trade.

MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com
MNI Tokyo Bureau | +81 90-2175-0040 | hiroshi.inoue@marketnews.com

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