Japan's economy stabilises as BoJ flags durable wage–price momentum

Board members noted that growth may remain modest in the near term amid global trade policy effects but is expected to pick up as overseas economies return to a growth path. The latest Tankan survey (short-term economic survey of enterprises in Japan) showed business sentiment holding firm, including among small and medium-sized firms, while labour-saving investment to counter workforce shortages is pushing up capital expenditure and supporting productivity, BOJ said in a press release.

Wage momentum remains a key pillar. Policymakers expect next year’s wage hikes at large, unionised firms to be at least on par with this year, underpinned by solid corporate profits, persistent labour shortages and elevated prices. Government stimulus measures are also expected to support activity over the next one to two years and may help ease households’ perceived inflation.

On prices, members said underlying CPI inflation continues to rise moderately as firms pass higher wages into selling prices. Although headline inflation is likely to ease temporarily due to base effects, the Bank expects real wages to turn positive in the first half of next year, with underlying inflation steadily moving towards the 2 per cent target. Sticky price pressures, exchange rate effects and intermittent import price shocks linked to demographics and climate change were flagged as risks requiring close monitoring.

ALCHEMPro News Desk (SG)