MNI INTERVIEW: BOJ To Wait Until Aug To Gauge Wages - Momma

The Bank of Japan will have to wait until August to gain good insight in whether wage increases are gaining traction, though inflation is expected to moderate over coming months, a former BOJ chief economist said.

“As for wages, the most typical data is the government’s monthly labour survey. The BOJ is focused on macro-economic data and the bank cannot assess overall wages through only one month of data,” Kazuo Momma, who was also the BOJ’s executive director in charge of monetary policy and is now executive economist at Mizuho Research and Technologies, told MNI.

Momma also said the BOJ needs to examine wage data for the April-June period to ascertain how the trend of wages has changed, but wage data for June will only be available in early August.

He added that bank officials are also closely watching the process of spring wage negotiations, which offer very important information, and the scale of wage hikes in fiscal 2023, including wage negotiations that will not be confirmed until August.

INFLATION TO EASE

As for the inflation outlook, Momma said the year-on-year rise of core inflation rate will fall in or after February as the government’s subsidies to lower energy prices take effect.

“Apart from the government’s subsidies, the year-on-year rise of Japan’s consumer prices will likely fall as import prices are falling,” Momma said, showing that the 2% price target will not be achieved in a foreseeable period. (See MNI POLICY: BOJ Eyes Inflation Flexibility In Accord Review)

Momma also said Japan’s economy is recovering from Covid-19 and a steady economic recovery will continue to be based on a recovery in the service sector as inbound tourists are increasing.

“Manufacturers may weaken in the wake of a slowdown of overseas economies but a steady economic recovery on a whole is projected,” Momma said.

He added that private consumption will not worsen but recover amid a crosscurrent between a recovery from Covid-19 and a worsening of household circumstances due to higher inflation, and that spending will take one step back for each step forward.

“Eating and drinking services, accommodation and various events that had been restricted (by the government) will activate,” Momma said. “Meanwhile, the BOJ survey showed that household circumstances are worsening amid high prices,” he added. The diffusion index of household circumstances fell 2.6 points to -49.3 in December, for the fifth consecutive drop, the latest BOJ survey showed.