MNI INTERVIEW: Ex BOJ Official Urges Faster Hikes, Eyes Dec
MNI (TOKYO) - The Bank of Japan should rapidly normalise easy policy to avoid falling further behind the curve on inflation, a former BOJ executive director told MNI, adding that a December hike would not be surprising as economic activity and prices are on track.
Kenzo Yamamoto, now representative for KY Initiative, questioned the BOJ’s cautious approach amid inflation that has reached about 3%, excluding government-subsidy affected electricity and gas prices.
“Is this an appropriate policy management? There is a gap between the BOJ and the public regarding price judgement,” he said.
The Bank misjudged the inflation view in 2022 and risked falling further behind the curve unless it stepped up its normalisation, he said, pointing to October’s core CPI print which held above 2% for the 31st straight month.
While the inflation rate has stayed above 2% since April 2022, the BOJ has consistently expected it to fall back towards 1%.
The Bank's desire to avoid financial market volatility had also likely contributed to its caution, Yamamoto argued, pointing to July’s market reaction following the board’s unexpected decision to increase short-term interest rates to 0.25%.
“It is too much to say that Governor [Kazuo] Ueda should manage policy appropriately as initial shocks in financial markets from rate hikes will not be unavoidable in the wake of the prolonged unprecedented monetary easing [under former Governor Haruhiko Kuroda],” he said.
“It is very difficult for the BOJ to figure out markets’ reaction in advance, so it may be natural for the BOJ to send the message of suggesting a rate hike and to pave the way for markets to factor in the policy action,” Yamamoto said, adding that financial market shocks will wane over time.
WAGES & PRICES
Recent real-wage data has disappointed Bank officials, Yamamoto noted, pointing to September’s downward revision to -0.4% from -0.1%.
If the BOJ regards a virtuous cycle between wages and prices as essential for its inflation strategy, then it will want to see the evidence in real wages data, he said. However, if the BOJ is mainly concentrating on the strength of prices, then officials will be paying close attention to services prices, which are rising steadily.
BOJ officials had expected real wages to rise gradually as inflation fell, but CPI has not moderated as much as anticipated, he explained. The BOJ says that the wage-price virtuous cycle will strengthen, but its assessment that this has already started is questionable, he added.