Consumer prices in Japan, which have been falling in recent months, are expected to start rising again from October as the recovery in the world’s second-largest economy broadens, a Bank of Japan policy board member said Thursday.
“There is a lot of uncertainty about when consumer prices will start to rise but I believe chances are high that an upward movement will begin from the latter half of [the] current fiscal year,” Kiyohiko Nishimura, who is considered a close ally of Toshihiko Fukui, the BoJ governor, told business leaders in Hokkaido.
The rate of change of core CPI, including energy prices, has dipped to a 0.2 per cent fall since the central bank raised overnight rates for a second time to 0.5 per cent in February. That is partly a reflection of a spike in oil and gasoline prices in the months to September last year, the base effect from which will start to fade from October.
Mr Nishimura also said he expected wages to rise, suggesting that the bank has not abandoned its long-term assessment that corporate profitability and a tight labour market will eventually push up salaries. “Regular pay and unit labour costs will rise clearly,” he said, adding that the five-year economic expansion would continue for a long time and broaden in scope.
However, figures released Thursday showed that the average monthly wage paid to corporate employees in Japan fell 0.7 per cent in April from a year earlier, the fifth consecutive month of decline.
Teizo Taya, counsellor to Daiwa Institute, said he did not expect wages to rise any time soon. “The retirement of highly paid workers will outweigh any upward pressure," he said, referring to the baby boomers who are leaving companies en masse beginning this year.
Mr Taya said he was puzzled that the bank kept stressing wages. “They have made a mistake so far. So why don’t they become a bit more cautious about this?” he said. However, he agreed with the bank’s central concern that rates are too low compared with the real state of the economy, which is growing at about 2 per cent a year.
Mr Nishimura addressed that point, saying the bank should take into account the distorting impact of low interest rates on capital allocation. Although that risk was not imminent, he added, the markets were "factoring in gradual interest rate adjustments in the future.”
Last month, Mr Fukui, the BoJ governor, spoke of the dangers of leaving rates too low for too long and said the central bank would even consider raising rates while prices were falling.
There have been anecdotal signs of stirring inflation in some sectors. Food company Ajinomoto, for example, this week said it would put up mayonnaise prices for the first time in 17 years. Tokyo taxi operators are also seeking government approval to raise taxi fares by 18.7 per cent, in the first increase since 1997.
The government, which controls taxi fares, said yesterday it was not convinced the increase would be passed to the drivers themselves. Taxi drivers have become a poster boy for Japan’s “wageless recovery”, with the opposition producing charts in parliament illustrating their economic plight.