BoJ board member Junko Nakagawa said in a speech that it’s “necessary for the Bank of Japan to persistently continue with the current powerful monetary easing,” and she laid out three reasons for that.
Firstly, Japan is “still on its way to recovery” from the pandemic. “As demand remains insufficient compared with supply capacity, a shift in the direction of monetary policy toward tightening would likely drag down the economy and put significant downward pressure on the economic activity of firms and households.”
Secondly, current inflation in Japan “differ considerably in terms of degree and the number of items” comparing to those in the US and Europe. The difference is “likely due to the disparity in wage inflation”.
Thirdly, the 2% inflation target “needs to be achieved in a sustainable and stable manner”. “Even if the higher price of some items pushes up the overall price level to 2 percent, unless household disposable income increases, spending on products and services will decline due to budget constraints.” Japan is only “halfway to achieve the price stability target.
