Even as the bank holds its monetary stimulus in place, the Bank of Japan's newest board member said she is seeing a gradual rise in price trends in the country that bears close watching.
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The upward pressure is strengthening a bit. Nakagawa's comments suggest that she and her colleagues see Japanese inflation starting to stir again, even though they stick to the view that it will take years for price gains to hit the bank's 2% target.
In Japan's key measure of consumer prices went up over the last two months for the first time in more than a year, but the gains were far cry from the price jumps faced by other economies and their central banks.
According to Nakagawa, a top executive at Nomura Holdings Inc. before joining the BOJ, it is true that we won't hit our price goal through fiscal 2023, but the prices of processed foods and other things are rising due to foreign exchange rates and rising oil costs.
The yen dropped to its lowest level against the dollar in over four years, helping to boost exporter profits and increase the cost of the country's imports.
Governor Haruhiko Kuroda said last month that the yen's current weakness is without doubt good for the economy, but Nakagawa didn't go quite as far, saying there are both positive and negative impacts.
She said that it is desirable for the currency to reflect economic fundamentals and move in a stable manner because large volatility is hard to deal with in short periods of time. On the question of whether the BOJ will wind down its crisis program to help fund business hit by the Pandemic, Nakagawa said that credit conditions for big businesses were improving but some smaller firms are still struggling, particularly in face-to- face services.
If economic activity is strong enough to withstand it if we change the program, Nakagawa said, adding that no decision had been made.
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