Bank Of Japan's Chief Trims Positive Economic Outlook Ahead of Policy Meeting

Bank Of Japan's Chief Trims Positive Economic Outlook Ahead of Policy Meeting

Japan's central bank governor Kazuo Ueda reportedly said Tuesday that his country's economy was recovering but faced some signs of weakness, signaling a relatively dismal outlook compared to the January forecast.

Signs of weakness

"Japan's economy is recovering moderately, although weakness has been seen in some data," said Ueda while addressing the parliament. He also said there are signs of softening economic conditions in the country's most recent data on its consumption rates and capital expenditure, according to a Reuters report Tuesday.

The Bank of Japan (BoJ) chief said that the higher costs of items negatively impacted the consumption of food and other essential items in Japan. However, household spending was improving on expectations of wage increases, he noted.

Monetary policy

Ueda did not disclose any information regarding when the Japanese central bank aims to end its current negative interest rates policy. But, he stated that there were several means through which short-term borrowing costs could be lifted in the scenario that the environment becomes ripe for an overall end to the policy.

In accordance with this policy, which has been in place since 2016, the BoJ charges a 0.1% interest to excess reserves financial institutions deposit with the central bank to push them to loan out the money.

The BoJ governor said that the payment of positive interest to the reserves would support the increase of the overnight call rate, the Reuters report added. He also explained that in the event of heightened inflation demanding an even stricter monetary policy, the central bank could tighten its stance by raising short-term borrowing costs rather than offloading its large bond holdings.

"We are focusing on whether a positive wage-inflation cycle is kicking off, in judging whether sustainable, stable achievement of our price target is coming into sight," Reuters quoted Ueda as saying.

"Various data have come out since January and we'll likely have additional data come out this week. We will look comprehensively at such data and make an appropriate monetary policy decision," he added.

Japanese economy

The Japanese economy grew 0.4% year-on-year, beating initial forecasts of a contraction, and successfully avoided falling into a technical recession in the fourth quarter of 2023.

The country's economy was heavily impacted by a slump in private consumption, which dropped by 0.3% in the October–December quarter, more than the 0.2% fall forecasted by the Japanese government.

Japan's capital expenditure beat the projection of a 0.1% decline to rise 2% quarter-on-quarter during the three-month period ended December 2023, official data showed Monday.

Surprising fact

With ongoing salary negotiations with labor unions set to conclude on March 13, economists are expecting an average increment of 3.9% in the yearly salaries of union members working at major companies. If it happens, this would be the highest salary increase in the Japanese labor market in 31 years, noted Reuters.