Nov 07, 2017 (Japan Times) - Nationwide inflation remains "relatively weak" but prices will gradually be pushed up toward the Bank of Japan's 2 percent target by rising labor costs, Gov. Haruhiko Kuroda said Monday.
"Firms' price-setting stance going forward is the key to the bank's outlook for prices," Kuroda told a meeting with business leaders in Nagoya. "Firms that have faced a rise in labor costs due to tight labor market conditions are likely to consider passing on a rise in wage costs to prices of their products and services."
The labor market in Japan is the tightest in decades, with more than 1.5 openings for every job seeker and unemployment steady below 3 percent. Prime Minister Shinzo Abe often touts the strong conditions as one of the accomplishments of his economic policies.
But wages have been slow to rise and household spending has yet to significantly pick up amid a persistent expectation that prices will not rise, a mindset that has taken root in the country after years of declining prices.
The BOJ has struggled to spur inflation despite more than four years of aggressive monetary easing even as central banks in the United States and Europe wind down stimulus. Japan's core consumer prices, which include energy, but not fresh foods, rose 0.7 percent in September.
Kuroda conceded in his speech that "there is a risk that a rise in inflation expectations will lag behind if it takes time for firms' stance to shift toward raising prices," hinting at his expectations for companies' behavior.
But he remained upbeat, saying that "a favorable environment has been put in place in which wage increases stimulate consumers' appetite for spending, leading to firms to take a bullish price-setting stance." The BOJ maintains a timeline of reaching the 2 percent inflation target around fiscal 2019.
