Japan’s chief cabinet secretary, Yoshimasa Hayashi, emphasized the importance of broadening wage hikes among smaller firms in order to achieve sustained wage gains and prevent rising living costs from affecting consumption and economic recovery. Hayashi’s comments came ahead of the Bank of Japan’s policy meeting, where the possibility of raising interest rates will be discussed.
The government is focused on creating a positive cycle where firms can pass on higher costs through price hikes, leading to increased pay for employees. Hayashi stated that the government may introduce a new fiscal stimulus package later this year to support households in case inflation rises further.
In a departure from radical stimulus measures, the Bank of Japan exited negative interest rates and bond yield control earlier this year. The markets are now considering the possibility of a rate hike at the upcoming policy meeting. Governor Kazuo Ueda has indicated that rate hikes will depend on evidence of broader wage increases and sustained inflation around the 2% target.
Hayashi also commented on recent yen declines, stating that it is desirable for currency rates to reflect fundamentals. He mentioned that there is no immediate need to revise the joint statement between the government and the BOJ, which commits to achieving the inflation target of 2%.
Critics have argued that the focus on defeating deflation in the joint statement is outdated, considering that Japan has faced inflation above the target for over two years. Despite recent interventions to support the yen, Hayashi did not comment on whether current currency levels were in line with fundamentals.
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