BoJ’s Kuroda forced to retract claim consumers tolerant of price rises

The governor of the Bank of Japan has been forced to retract his claim that consumers had become more “tolerant” of price rises after a public backlash overy soaring food and energy costs.

The rare apology issued by Haruhiko Kuroda underscored the political sensitivity of price increases ahead of July elections to the upper house of Japan’s parliament that are likely to be largely fought over the rising cost of living.

“My expression that households are becoming more tolerant of price rises was utterly inappropriate, so I will retract it,” Kuroda said in parliament on Wednesday.

The retraction came on the same day the yen slid against the dollar to below ¥134, a fresh 20-year low that will drive up the cost of imported goods for the resource poor Japanese economy.

Speaking at the Financial Times Global Boardroom conference on Wednesday, Kuroda suggested price rises would not be sustained and that downward pressures on the yen from increasing interest rate differentials with the US were likely to ease.

The BoJ governor had said in a speech on Monday that Japanese households might have become more accepting of price rises due to “forced savings” accumulated as a result of Covid-19 restrictions.

“The point to consider for the time being how Japan . . . can maintain a favorable macroeconomic environment and make this lead to a full-fledged rise in wages, including base pay, from fiscal 2023 onward,” he said.

Kuroda’s comments drew immediate criticism on social media and from members of opposition parties as being “insensitive to household pain”. The timing was also unfortunate, with prime minister Fumio Kishida having just compiled emergency measures to combat rising commodity prices that include subsidies for lower income households.

“What the governor had tried to say was that there will be opportunities to raise wages if company profits increase by transferring the cost to consumers through price increases,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. “But the flip side of that is households will suffer the pain of price rises, and the governor was insensitive to that part.”

Greater tolerance of price increases among Japanese consumers would be a sea change for a country that has struggled with a deflationary mindset for decades.

There has been almost no pass-through from rising prices to higher wages, despite the fact that Japan is heavily exposed to the increasing cost of imported commodities.

Companies in Japan are hesitant to transfer those costs to consumers because they fear a public backlash if they raise prices, while workers — beaten down by decades of stagnant pay — do not demand the higher wages that would let them afford higher prices in the shops.

While the US Federal Reserve and the Bank of England are raising interest rates, the BoJ has repeatedly said it will maintain its monetary easing, exacerbating a global divergence in yields that has pushed the yen to historic lows.

At the Global Boardroom conference Kuroda repeated that the rise in prices was driven by energy costs and would not be sustained. “At this moment, Bank of Japan must continue its support for economic activity by continuing with the current monetary easing,” he told Financial Times chief economics commentator Martin Wolf.

Asked about the sliding yen, Kuroda said market players had largely priced in how much the US Fed would like to increase interest rates.

“Unless the Fed raises interest rates much faster than, or more than, what their forward guidance shows, the dollar rate may not be so much affected by [US-Japanese] interest rate differentials,” he added.