The Bank of Japan (BOJ) has raised interest rates for the first time since 2007. Sayuri Shirai, a former member of the BOJ's Monetary Policy Committee and currently a professor of economics at Keio University, speculates that the increase could be an isolated one, given the fragility of the Japanese economy, marked by a fall in real consumption and real wages over the last three quarters.
She questions the timing of this decision, believing that the BOJ could have waited for the April data, which reflects the results of the spring wage negotiations, available in June. However, Shirai believes that the central bank wants to seize the opportunity to exit negative interest rates while inflation is still above 2%.
Shirai points out that the wage negotiations could result in a 5.5% wage increase, but points out that such forecasts were not fully realised last year, particularly in SMEs which are unable to increase wages due to low profitability. She believes that the BOJ should have waited for the June data before taking action.
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Shirai says that the BOJ cannot contemplate multiple consecutive increases due to the weakness of the economy and a persistently negative output gap among SMEs. She adds that current inflation, excluding food and energy, is already below 2%, calling into question the stability of the 2% inflation target.
Shirai expects the BOJ to continue buying Japanese government bonds to support a government that is not yet ready to face a high-interest rate environment. She also suggests that the BOJ could review its inflation target, adopting a range of 1% to 3% that can be revised every three years, instead of focusing on a strict 2% target.
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