BOJ will keep tight monetary policy despite global inflation

The Bank of Japan will keep its tight monetary policy despite the fact that the economy has not been affected by the global inflation trend, and the country's 15 year experience with deflation is keeping wage growth subdued, Governor Haruhiko Kuroda said.

In May, Japan's core consumer inflation hit 2.1% for two consecutive months but the increase was due to soaring energy prices, Kuroda was quoted as saying in a video recording of a seminar released on Wednesday.

Consumer inflation may stay around 2% for a year, but it is likely to slow to around 1% in the next fiscal year beginning in April 2023, he said.

According to the recording released by the Bank for International Settlements BIS, the Japanese economy has not been much affected by the global inflation trend, so monetary policy will continue to be accommodative, he said. In the wake of Japan's 15 year deflation that lasts through 2013, the country's firms have become very cautious in raising prices and wages.

The economy recovered and companies recorded high profits. The labour market was quite tight. But wages didn't increase much and prices didn't increase much, he said.

Japan's core consumer inflation has been above the BOJ's 2% target due to rising global commodity prices and a weak yen.

Kuroda stressed the need to maintain ultra-low interest rates until inflation is driven by strong demand, making the BOJ an outlier among a global wave of central banks hiking rates to combat surging inflation.

Kuroda said it was extremely difficult to assess the impact of various structural changes, such as geopolitical risks and digitalisation, on the global economy.

In any case, the mandate of central banks will be the same. He said that the policy transmission channel could change with uncertainties to make sure that prices for economic development are stabilise with our monetary policies.