Key facts
- The Bank of Japan said firms' inflation outlook appears to gradually converge around 2%, while households' expectations vary widely.
- The bank said the share of wage increases consistent with 2% inflation plus labor productivity growth has risen in recent years.
- The Bank of Japan said domestic consumption has been sluggish in real terms due to bad summer weather and rising living costs.
- The bank said consumption as a whole is likely to remain resilient, partly due to fuel subsidies, higher stock prices and wage gains.
The Bank of Japan said in its quarterly outlook report published on Monday that Japan has made gradual progress toward anchoring inflation around its 2% target, a finding it said strengthens the case for raising interest rates.
The central bank said it weighed inflation expectations, firms' wage- and price-setting behavior and the degree to which households and firms act on the assumption that prices will rise by around 2%. "With underlying inflation moving around 2% and upside risks to prices warranting attention, interest rate hikes will likely alleviate price pressures and underpin consumption," the bank said in the full version of the report.
The Bank of Japan said firms' inflation outlook appears to gradually converge around 2%, while households' inflation expectations vary widely. It said the share of wage increases broadly consistent with 2% inflation plus labor productivity growth has risen in recent years, and that underlying inflation has risen toward 2% over the past few years with gradual progress toward anchoring it at that level.
The bank said domestic consumption has recently been sluggish in real terms due to bad weather during the summer and a hit to spending from rising living costs. It said consumption as a whole is likely to remain resilient, partly thanks to government subsidies to curb fuel prices, higher stock prices and rising wages from a tight job market.
The Bank of Japan publishes the full version of its quarterly report on the market day after it concludes its policy meeting, at which it releases a summary.