Steady wage and price growth is in sight for Japan

Significance Yen weakness in the face of persistently strong US interest rates argues for further monetary tightening but that is countered by wage- and price-growth in Japan remaining below target. The BoJ hopes that the largest union pay deal in three decades will support a wage-price inflationary dynamic. However, Governor Kazuo Ueda insists that there must be wider evidence of inflation rising before he tightens policy further. Impacts The authorities have intervened to curb yen weakness but see benefit in higher import prices pushing inflation towards the target. The BoJ has ended its purchases of ETFs and J-REITs but the large amounts on its balance sheet will hang over financial markets for years. The BoJ owns 60% of outstanding Japanese government bonds and will not want to upset markets with sudden and sharp moves to run this down. With ‘yield curve control’ having ended, rates on ten-year and 30-year Japanese government bonds are rising to levels last seen in 2012.