The Bank of Japan should stop trying to keep policy normalization speculation at bay by offering an inflation outlook that doesn’t reflect reality, according to one of the country’s leading experts on prices.
While the central bank sharply raised its price outlook last month, it was still kept too low, said Tsutomu Watanabe, an economics professor at the University of Tokyo. That move was likely due to concerns over fueling speculation that the BOJ will change its negative interest rate, he said in an interview Monday.
The level of revision that was actually needed in the projection probably would have forced upward shifts for the other two fiscal years through 2025, bringing them above the central bank’s target of 2%, Watanabe said. That would have put the bank in an awkward position, if it wants to keep stimulus unchanged.
The professor spoke days after BOJ chief Kazuo Ueda reiterated the need to continue with monetary stimulus at the annual Jackson Hole symposium, citing underlying inflation that’s still below the bank’s 2% target. Watanabe said he disagrees with Ueda’s price assessment. For the future path of monetary policy, the annual spring wage negotiations that start later this year is extremely important, Watanabe said. It’s likely to decide whether Ueda can raise rates during his five-year term ending in April 2028, he said.
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