Editorial: Measures needed to support people’s lives as BOJ improves inflation forecast
Commodity price increases are accelerating amid soaring resource prices and a weak yen, which has a direct impact on the lives of Japanese people. The government and the Bank of Japan (BOJ) must increase their level of vigilance.
The central bank raised its forecast for core consumer inflation for the current fiscal year to 2.3%, up 0.4 percentage points from its April forecast. Excluding the effects of the consumption tax hike, this is the first time in 20 years that the forecast has exceeded the bank’s 2% target.
However, only price increases progressed, while wage increases were slow. This is far from being a desirable economic situation. In order to support the economy, the BOJ decided to maintain its large-scale monetary easing policy.
Due to Russia’s invasion of Ukraine, the price of crude oil and other energy sources, as well as grain, is rising and inflation is becoming a global problem. Central banks in other major countries have prioritized inflation-fighting measures and are rushing to tighten monetary policy.
The European Central Bank has decided to raise interest rates for the first time in 11 years, by 0.5 percentage point, or twice the rise initially planned. The Federal Reserve Board, which acts as the central bank of the United States, is also expected to make another sharp rate hike in the near future.
In contrast, BOJ Governor Haruhiko Kuroda stressed, “We have absolutely no intention of raising interest rates. We will continue to ease them constantly.” Compared to overseas countries that have flexibly changed their monetary policies, the deadlocked atmosphere within the BOJ stands out.
Japan is feared to experience a repeat string of a weak yen and high prices. Some observers believe the yen could even weaken to 140 yen to the dollar for the first time since 1998 as the dollar, with its high interest rates, is bought in the foreign exchange markets.
According to research firm Teikoku Databank Ltd., the price of some 15,000 food items in Japan is expected to rise this year. Previously, these increases were mainly caused by rising raw material and logistics costs, but recently the effects of the weak yen have been felt and price increases are expected to follow each other in August and October, according to the company. .
While monitoring exchange rate trends, the government and the BOJ should consider strengthening policies to support low-income people to limit the impact of these price hikes on their lives.
It is also worth being alert to the risk of a slowdown in the global economy, as there is a risk that monetary tightening in the United States and Europe will excessively dampen investment and consumption, disrupting financial markets.
The number of people infected with the coronavirus in Japan has recently increased and uncertainty over the economic outlook is growing. It is necessary to adopt flexible policies.