BOJ Sees Need for Vigilance on 'Non-Linear' Inflation Spikes

A Bank of Japan (BOJ) executive has sounded an alarm over persistent inflation risks in Japan, citing rising import costs and currency shocks as key factors. According to a conference summary released on Monday, BOJ Executive Director Koji Nakamura noted that the central bank had observed 'non-linear' reactions of domestic prices to external shocks.

The non-linear reactions refer to sharp price increases in response to both import price and exchange rate shocks. This has raised concerns over the need for monetary policy adjustments. The BOJ has already hiked interest rates to a 31-year high of 1% in June and is set to raise them again this week, sources have told Reuters.

Nakamura emphasized that central banks should take these non-linearities into account when conducting monetary policy. He also highlighted the need for a combination of data and anecdotal analysis to better capture changing behavior of households and firms, which could affect inflation expectations.