TOKYO, Sept 11 (Askume) – The Bank of Japan will keep raising interest rates if inflation stays in line with her forecasts, policymaker Junko Nakagawa said, adding that last month’s market drop had not affected banks’ plans to raise borrowing costs.
But he said the central bank should take into account the impact of market changes on the economy and prices when considering raising interest rates.
“Since real interest rates are currently very low, if our economic and price forecasts are met, we can achieve the 2% inflation target in a sustainable way,” Nakagawa said in a speech to business leaders in northern Japan on Wednesday. “We can make adjustments and provide a certain amount of monetary support to make up for it.”
Hajime Takata, another member of the Bank of Japan’s policy committee
Rising interest rates in July and weak US employment data in early August caused the yen to rise against the dollar and global stock markets to fall.
Nakagawa stressed that Japan’s strong economic fundamentals have not changed significantly and that the Bank of Japan should “pay attention to market developments” after the policy change in July and assess its impact on the economy.
Japan’s economy grew at a 2.9% annual rate from April to June as steadily rising wages supported consumer spending. Capital spending has continued to rise, even as weak Chinese demand and sluggish U.S. economic growth continue to cloud the export-dependent country’s outlook.
Core consumer inflation reached 2.7% in July , underscoring the Bank of Japan’s view that Japan is on track to achieve its 2% inflation target, supported by solid wage growth.
Nakagawa warned that overseas uncertainty posed risks to Japan’s economy, but said rising wages would lead to a modest increase in consumer spending, helping to boost the inflation trend.
He also said there are upside risks to Japan’s price outlook due to a tight job market and continued rise in import prices.
“Wage growth may be higher than expected due to a shortage of labor supply, so we must remain alert to the risk that inflation may exceed our target,” Nakagawa said.
Nakagawa, the former chairman of Japan’s Nomura Asset Management, is considered neutral by the market for his stance on monetary policy.
