Bank of Japan governor vows to maintain ultra-loose monetary policy

The Bank of Japan will maintain its ultra-loose monetary policy as the economy has not been greatly affected by the global inflation trend, said Bank of Japan Governor Haruhiko Kuroda, noting that the country’s 15-year experience with deflation is keeping moderate wages.

Core inflation in Japan hit 2.1% for two straight months in May, but the rise was almost entirely due to rising energy prices, Kuroda said in a video recording of a seminar released on Wednesday.

While core consumer inflation may remain around 2% for about a year, it is expected to slow to 1% in the next fiscal year, which starts in April 2023, he said.

“Unlike other economies, the Japanese economy has not been greatly affected by the global inflationary trend, so monetary policy will continue to be expansionary,” he said, according to the recording released by the Bank for International Settlements (BIS).

In the wake of Japan’s 15-year deflation that lasted until 2013, the country’s companies became “very cautious” in raising prices and wages, Kuroda said at the seminar held in Basel on Sunday.

“The economy recovered and companies posted high profits. The job market has become quite tight. But wages haven’t gone up much and prices haven’t gone up much,” he said.

Rising global commodity prices and a weak yen, which inflates the cost of importing raw materials, have pushed Japan’s core inflation to above the Bank of Japan’s 2% target.

But Kuroda has repeatedly stressed the need to keep rates ultra-low until inflation is driven more by strong demand, making the Bank of Japan an exception among a global wave of central banks raising rates to fight rising inflation.