BoJ’s Wakatabe: Secular stagnation risk has yet to pass

“Central banks must remain on guard against the potential dangers of secular stagnation and low inflation as price rises driven by cost-push factors do not last long,” Bank of Japan (BoJ) Deputy Governor Masazumi Wakatabe said on Monday per Reuters.

Key comments

Japan's economy was in deflation for a prolonged period, but sustainable monetary easing has ‘certainly had a positive effect’ on the real economy.

The mild-inflation regime has not come to an end, and we should say that the potential dangers of secular stagnation and Japanification have not yet passed.

While inflation has recently accelerated across the globe, many of the factors pushing up prices are driven by higher costs such as the war in Ukraine.

When an exogenous shock occurs, there is an adjustment from the old to a new price system. After adjustment, the rising inflation rate is likely to return to the steady-state inflation rate.

So the important point is how this rate is affected. Of course, it is possible that cost-push factors will remain, but whether they will push up the steady-state inflation rate is uncertain.

(It was) Well known that cost-push inflation does not last long.

USD/JPY awaits Tokyo open

Given the late Monday’s commentary from a prominent BoJ officials, the USD/JPY price should have acted in a positive way, considering the talks in favor of easy money policy. However, the Yen pair remains inactive around 136.20 by the press time of early Tuesday in Asia, after retreating from a two-month high the previous day.