The Bank of Japan must tread cautiously in raising interest rates, as some indicators of inflation expectations remain short of its 2 per cent target, the International Monetary Fund’s Japan mission chief Nada Choueiri said on Friday.
“I firmly believe that all the countries of the G7, and this includes Japan, are committed to flexible exchange-rate regimes and appreciate the importance of a flexible exchange rate.” Choueiri said Japan’s consumption will likely strengthen in the second half of this year on expected “very strong” wage gains that are expected to spread to smaller firms.
Among the risks are the impact on Japan’s exports from global fragmentation and geopolitical tensions, as well as uncertainty about the strength of domestic consumption, Choueiri said. In March, the BOJ ended eight years of negative interest rates and other remnants of its unorthodox policy, marking a historic shift away from its focus on reflating growth with decades of massive monetary stimulus.
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