![“Balancing Act: BoJ’s Monetary Policy and Japan’s Wage Dynamics” “Balancing Act: BoJ’s Monetary Policy and Japan’s Wage Dynamics”](https://washingtonnewspost.com/wp-content/uploads/2024/04/7-22.png)
It’s imperative for the Bank of Japan (BoJ) to uphold its ultra-loose monetary policy while striving to strike a balance in labor supply and demand dynamics.
Japan is currently witnessing unprecedented wage increases as a result of the spring wage negotiations.
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BoJ
Sustaining an appropriate equilibrium between labor supply and demand remains crucial, necessitating the continuation of accommodative monetary measures to reach the 2% inflation target.
Japan must expedite the establishment of a positive wage-inflation cycle, with a particular emphasis on the continuous rise of service prices.
Last year’s spring labor negotiations sparked an unprecedented surge in wages across various sectors.
Another critical aspect is facilitating small manufacturers’ ability to smoothly adjust to escalating wage costs by adjusting prices accordingly.
The correlation between wage hikes and price increases will be reflected in the upward trajectory of service prices, a trend that is increasingly evident.
The long-term neutral interest rate is likely to remain lower in Japan compared to other countries.
Looking ahead, there’s a need to consider initiating the reduction of the BoJ’s balance sheet at an appropriate juncture.
The measures adopted by the BoJ in March signify a step toward this future direction of balance sheet reduction.
I dissented from the BoJ’s March decision as I believed it prudent to continue purchasing Japanese government bonds under a negative interest rate environment.
Although there hasn’t been a significant correlation between wage hikes and the rise in service prices yet, the trend is gradually emerging.
Japan’s economy has been experiencing a moderate recovery, but recent indicators suggest a slowdown in growth momentum.