“The increasing side-effects are a sign the policy effect (of YCC) is working its way through the economy,” former BOJ deputy governor Hiroshi Nakaso was quoted as saying in an interview with the Nikkei newspaper.
“When the appropriate timing comes, the BOJ’s new leadership will likely modify or abolish YCC,” he said.
Japan’s long-stagnant inflation and wage growth are showing budding signs of change. After hitting a 41-year high of 4.2 per cent in January, core consumer inflation remains above 3 per cent as more firms hike prices in response to rising raw material costs.
To compensate households for the increase in living costs, major firms have offered wage hikes of nearly 4 per cent this year in annual labour talks, the fastest pace in about three decades.
At his final briefing as governor on Friday, Kuroda said Japan was moving closer to achieving sustained 2 per cent inflation as the public’s long-held perception that prices won’t rise, was beginning to change.
But mounting US recession fears are among headwinds for Japan’s export-reliant economy. While the end to COVID-19 curbs is propping up consumption, some analysts warn a recent slew of price hikes for daily necessities could also hurt spending.
Ueda will chair his first policy meeting on Apr 27 to Apr 28, when the board produces fresh quarterly growth and price forecasts extending through fiscal 2025.
Markets are focusing on whether the board will project inflation accelerating towards, or even hitting, 2 per cent inflation in fiscal 2024 and 2025.
Under current forecasts, the BOJ expects core consumer inflation to hit 1.6 per cent in the current fiscal year that began in April and accelerate to 1.8 per cent the following year.
Ueda served as BOJ board member from 1998 to 2005, during which the central bank introduced zero interest rates and then quantitative easing to combat deflation and economic stagnation.
