MNI BRIEF: BOJ's Kuroda Says CPI To Slow After Rising Above 3%

Bank of Japan Governor Haruhiko Kuroda on Monday maintained his cautious view on prices, saying the inflation rate is expected to decelerate gradually from the beginning of next year.

“The BOJ forecasts that the rate of change in the CPI will be at around 3% for this fiscal year but then around 1.5% from fiscal 2023,” Kuroda told business leaders in Nagoya City. (See MNI BRIEF: BOJ To Keep Easy Policy To Support Economy)

He added, “Projections that inflation will fall below 2% are made not only by the BOJ but also by others, including the International Monetary Fund and private-sector economists.” (See MNI BRIEF: BOJ To Discuss Exit If 2% Target Sustained - Kuroda)

“Although Japanese firms had long been cautious about raising prices, those for a wide range of products have been raised recently. Close attention to firms’ prices-setting behavior going forward is warranted.”

Kuroda warned of higher wages, saying, “Tightening labor market conditions may lead to wage increase through, for example, reallocation of labor to areas with higher productivity.”

He said it is necessary to examine future wage developments carefully since they are also affected by economic developments at home and abroad.

Kuroda said that Japan’s economy is still on its way to recovery from the pandemic and the output gap has remained in negative territory.

“The BOJ projects that the output gap will turn positive at some point in the second half of this fiscal year with a recovery in the economy. The inflation rate, however, has not risen from the demand side at present.”