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Ukraine crisis may hurt Japan’s economy via fuel spike, says BOJ policymaker

Ukraine crisis may hurt Japan's economy via fuel spike, says BOJ policymaker
© Reuters. FILE PHOTO: A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon

By Leika Kihara

TOKYO (Reuters) – The crisis in Ukraine could hurt Japan’s economy by driving up the price households and companies pay for fuel and commodities, a central bank policymaker said on Thursday, signaling the need to maintain massive stimulus to support a fragile recovery.

Japan’s consumer inflation could briefly approach the central bank’s elusive 2% target due in part to sharp rises in energy costs triggered by the crisis, Bank of Japan (BOJ) board member Junko Nakagawa said.

But such a rise in inflation alone would not be reason to dial back stimulus, Nakagawa said, adding that Japan’s economy was still in the midst of recovering from the pandemic’s wounds.

More time was needed to gauge the Ukraine war’s impact on Japan’s economy, which may come not just through trade but market volatility and rising raw material costs, she said.

“While energy and food prices may rise, such moves could weigh on Japan’s economy if they hurt corporate profits and household income,” Nakagawa told a briefing.

“We need to scrutinise developments (in Ukraine) more to determine whether they warrant a big change in monetary policy,” said Nakagawa, the first BOJ policymaker to elaborate on the economic outlook since Russia invaded Ukraine.

While soaring raw material costs have pushed up wholesale prices in Japan, core consumer inflation stood at 0.2% in January on weak household spending and wage growth.

But analysts expect core consumer inflation to pace up towards the BOJ’s 2% target from next month, as the drag from cellphone fee cuts dissipates and rising oil costs boost gasoline and electricity bills.

“For the time being, inflationary pressure will remain strong, mainly for energy, food and industrial goods,” Nakagawa said in a speech prior to the briefing, adding that year-on-year growth in core consumer prices may “briefly rise close to 2%.”

“Even if that happens, what’s important is to scrutinise the factors (driving up prices) and whether Japan’s economic fundamentals are strong enough to make such price rises sustainable,” she said.

The remarks heighten the chance the BOJ will upgrade its inflation forecast in a quarterly review of its projections in April. In current forecasts, it expects core consumer inflation to hit 1.1% in the fiscal year beginning in April.

Japan’s reliance on fuel and food imports makes its economy vulnerable to higher commodity prices, adding to woes for policymakers fretting about the hit to growth from the pandemic.

Given Japan’s low inflation and fragile recovery, BOJ Governor Haruhiko Kuroda has repeatedly said the bank has no intention of following in the footsteps of the U.S. Federal Reserve in tightening policy.

Source: Investing.com

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