MNI INTERVIEW: BOJ Needs Signs Of Real Wages Growth -Yamamoto

Real wage growth will have to turn positive or be clearly turning positive before the Bank of Japan will confirm that it has achieved the virtuous wage-price cycle it needs for reaching its inflation target, something which is still not guaranteed, a former BOJ executive director told MNI.

With real wages coming in negative for an 18th straight month in September, the outlook remains uncertain, Kenzo Yamamoto, now the representative for KY Initiative, said in an interview in which he declined to speculate on how or how soon the BOJ would phase out its negative interest rate policy and yield curve control framework.

“Nobody is confident of the virtuous cycle when real wages are in negative territory,” he said, “I have no intention of saying that the virtuous cycle will not happen absolutely.

But simply speaking, real positive wages are inevitable for the BOJ to declare the realisation of the virtuous cycle.”

EARNINGS BOOSTED BY WEAKER YEN

While many major manufacturers have reported record profits, increasing hopes they will again implement hefty wage hikes next year, Yamamoto said that elevated earnings were due to the strong U.S. dollar against the yen and solid offshore sales.

Corporations are concerned that profits stemming from the weak yen may not be repeated.

“So it is questionable that the high profits will be returned sufficiently to domestic workers,” Yamamoto commented, noting the BOJ will want to see considerable and continuous wage hikes if it is to achieve its 2% price target in a stable manner.

MNI reported last week BOJ officials were concerned some companies may switch to one-off bonus payments over offering higher base pay due to elevated overseas uncertainty and weak domestic demand. (See MNI POLICY: BOJ Wary Over Outlook For Pay Rises)

Amid speculation that the BOJ will declare victory over inflation after a major wages survey in March, Governor Kazuo Ueda has stressed that what is required is not real wages growth as such but rather certainty that such growth is imminent.

Yamamoto said labour productivity drove wages, not monetary policy.

When the BOJ attempted to increase productivity via ultra-easy policy between 2013-2023, it met with little success, and real wages fell roughly 0.8%, more than during the preceding period, he added.

EASY EXIT

While the BOJ is already adjusting its long-term interest rate policy target, moving in October to drop the 1% limit for the 10-year yield, and to treat it as a reference point, it will continue to purchase government bonds to avoid sharp market moves for now, Yamamoto said. (See MNI BOJ WATCH: BOJ Relaxes YCC, Sees Limited Rise In Yields)

The negative interest rate policy is a symbol of easy policy but its impact has been offset as the portion of reserves in the tier paid at +0.1% has increased, so raising the lower tier to zero will have no substantial impact on the real economy, Yamamoto said.