Tsutomu Watanabe, a former official of the Bank of Japan and one of the well-known inflation experts in Japan, recently stated that the Bank of Japan may take action slowly before raising interest rates again, possibly as early as October.
The economics professor at the University of Tokyo said, "I don't think the next step will come so soon. The Bank of Japan may adjust policies by observing data and will not take irrational actions."
Watanabe's viewpoint contrasts sharply with the views of some Bank of Japan observers. Observers point out that as the yen exchange rate falls near a 34 year low, the Bank of Japan may take swift action.
It is reported that Watanabe was a potential candidate for the position of Bank of Japan Governor when it became vacant last year. The professor now expects the central bank to take some time to measure the inflation trend, as the current price trend is not so strong.
He further stated that the decision of the Bank of Japan to end negative interest rates last month does not seem to be an evidence-based policy measure, as service prices are still somewhat sluggish, as a key inflation data was released only a few days after the March 18-19 meeting.
"I think, what's going on? It's completely independent of data," he said; Quota; There must be some important reasons for us to act hastily. The weak yen is unlikely to be a catalyst, as if the Bank of Japan is willing, it can send a hawkish signal to solve the problem.
According to Watanabe, the Bank of Japan's main focus in the future may be on how wage increases will be reflected in service prices, which have not shown any impressive acceleration so far. Service prices in Japan increased by 2.2% in February, unchanged from the previous month.
Rengo, the largest trade union federation in Japan, announced after annual spring wage negotiations that the average salary of its members increased by 5.3%, the best result since 1991. Watanabe stated that to assess the impact on service prices, the Bank of Japan needs to wait until at least August.
"This makes October, when the central bank releases its latest quarterly inflation outlook, an ideal time frame for subsequent rate hikes," he said.
According to a media survey, about 62% of Bank of Japan observers predict that the next rate hike will be in the fall of this year, with 23% believing it will be in July and 26% believing it will be in October.
Finally, Watanabe stated that for Bank of Japan Governor Watanabe, the next most important task is to develop a quantitative tightening plan. The ratio of the Bank of Japan's balance sheet to economic size is the highest among major central banks.
"The Bank of Japan should convey even a vague idea of quantitative tightening within the year," he said. "It is acceptable to reduce the balance sheet in decades or even centuries."