By Megumi Fujikawa
The Bank of Japan should keep raising interest rates if it confirms that positive economic trends like wage growth are firmly in place, policy board member Hajime Takata said Thursday.
"I believe it is necessary to shift gears again -- to further adjust the degree of monetary accommodation -- and make, so to speak, a world with interest rates," Takata said in a speech to business leaders in Ishikawa Prefecture.
Before taking any action, the bank will ensure that inflation is behaving in line with its projections and assess the health of the corporate sector, looking at indicators such as capital expenditure increases and pay raises, he added.
That echoes recent comments from BOJ Gov. Kazuo Ueda, who said that the bank's basic stance is to raise interest rates if the economy and prices align with its projections.
Government data released earlier Thursday showed that wages adjusted for inflation rose 0.4% from a year earlier in July. Although the pace was slower than June's 1.1% growth, it marked two consecutive months of increases after falling for more than two years.
Policymakers and economists expect a recovery in inflation-adjusted wages to help boost private spending.
Following turmoil across global markets in early August, some economists warned that sharp falls in Japanese stock prices could hurt consumer sentiment. But Takata, an economist who wrote a book on how the BOJ could exit its easy monetary policy stance before taking up his current post, thinks the bank is still on its way to achieve its goal of stably anchoring inflation at 2%.
"Although there have been large fluctuations in share prices and foreign exchange rates, I believe that the achievement of the price stability target is still within sight," Takata said in Thursday's speech.
On July 31, the BOJ raised interest rates to 0.25% from the previous range of 0% to 0.1%. Ueda has said the bank decided to hike because the economy was improving as expected and a weaker yen had raised inflation concerns.
The yen has strengthened recently against the dollar, taking some pressure off of import prices. Reflecting expectations for a narrowing interest-rate gap between the U.S. and Japan, the yen reached around 143.20 to the dollar early Thursday trading in Tokyo, the strongest level in a month.
Takata said that as the U.S. and European central banks have raised interest rates quickly over the past years, the impact of those actions could weigh on the Japanese economy, with some time lag.
The Federal Reserve is widely expected to begin its policy easing cycle as early as this month.
"As differences in monetary policy stances may cause fluctuations in financial markets, it is necessary to carefully monitor domestic and international developments for the time being," Takata said.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
09-05-24 0020ET
