BOJ Official Shifts Focus to Supply-Driven Inflation
A Bank of Japan (BOJ) official has emphasized that monetary policy must consider supply-driven inflation, rather than just demand-side inflation. This is a shift in focus for the central bank, which has traditionally targeted demand-driven inflation.
The BOJ's Executive Director Koji Nakamura pointed out that Japan's inflation has surged due to climbing import expenses and currency turbulence. He suggested that these kinds of price responses should be incorporated into monetary policy deliberations.
Nakamura noted that the COVID-19 pandemic, Russia's invasion of Ukraine, elevated U.S. tariffs, and the Middle East conflict have all contributed to supply-side inflation. He also pointed out that Japan has seen non-linear responses of domestic prices to external shocks, with consumer prices climbing steeply when both import price and exchange rate shocks occurred.
The BOJ has already ended its decade-long stimulus program in 2024 and has pledged to continue raising interest rates as a tight job market and climbing import costs increase the danger of inflation exceeding its 2% target.