TOKYO: The Bank of Japan (BoJ) is projected to raise its short-term policy rate to 2% from 0.75% currently by end-2027, as robust domestic demand will help the economy absorb external shocks from the Middle East conflict, according to the Organisation for Economic Co-operation and Development (OECD).<\/p>\n
The assessment lends support to the BoJ\u2019s recent hawkish tilt ahead of its June policy meeting, with OECD arguing that higher inflation expectations, solid wage growth and a closed output gap justify continued rate hikes.<\/p>\n
\u201cThe Japanese economy is currently in a transitional period, shifting from three decades of near-zero inflation to an economy with rising prices and wages and growth supported by domestic demand,\u201d the Paris-based body said in a report.<\/p>\n
\u201cWhile uncertainty from external headwinds warrants a cautious approach, the (BoJ\u2019s) interest rates should continue to be raised, given higher inflation expectations, solid nominal wage growth and a closed output gap,\u201d it said.<\/p>\n
OECD secretary-general Mathias Cormann brushed aside concerns the central bank may be acting too slowly to tackle the risk of excessively high inflation.<\/p>\n
\u201cWe don\u2019t think the BoJ is clearly behind the curve. Inflation expectations are anchored and wage dynamics are strengthening,\u201d he told a news conference.<\/p>\n
On fiscal policy, Cormann urged Japan to discontinue its practice of regularly compiling supplementary budgets and instead, limit their use to combat large economic shocks.<\/p>\n
He also repeated the OECD\u2019s long-held proposal for Japan to gradually raise the consumption tax rate which, at 10%, is among the lowest in member economies.<\/p>\n
Temporary freezing an 8% levy on food, an idea pursued by the administration, was \u201crather a blunt and costly\u201d response to rising living costs, he said, adding a better approach would be to provide fiscal support targeting low-income households.<\/p>\n
OECD expects Japan\u2019s economy to expand 0.7% in 2026 and 0.9% in 2027, slowing from an 1.2% increase last year.<\/p>\n
Inflation will likely converge towards the BoJ\u2019s 2% target in 2026 to 2027 with robust domestic demand underpinning economic growth, it said.<\/p>\n
The recommendations come as the BoJ gears up for another hike in its short-term policy rate from the current 0.75% with a recent slew of hawkish signals heightening the chance of action at its next meeting on June 15 to June 16. \u2014 Reuters<\/p>\n","protected":false},"excerpt":{"rendered":"TOKYO: The Bank of Japan (BoJ) is projected to raise its short-term policy rate to 2% from 0.75%…\n","protected":false},"author":2,"featured_media":22910,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[174],"tags":[18110,18115,191,189,18112,18111,188,5920,190,18113,6279,18114],"class_list":["post-22909","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-bankofjapan","tag-domesticdemand","tag-economy","tag-economy-of-japan","tag-inflationtarget","tag-interestrates","tag-japans-economy","tag-japaneconomy","tag-japanese-economy","tag-monetarypolicy","tag-oecd","tag-wagegrowth"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/22909","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/comments?post=22909"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/22909\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media\/22910"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media?parent=22909"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/categories?post=22909"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/tags?post=22909"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}