Bank of Japan board members warned of global headwinds to the economy as counterparts abroad rush to tighten policy to bring inflation back under control, a summary of opinions at its July policy meeting showed.
¡°Amid monetary tightening in Europe and the United States, it is necessary to pay attention to risks that could affect Japan¡¯s economy, including that of the U.S. economy falling into recession,¡± one of nine BOJ board members said at the July 20 to 21 policy meeting.
The summary was released hours after the U.S. recorded a second consecutive quarterly economic contraction. With Japan heavily reliant on global demand, a slowdown could jeopardize the BOJ¡¯s push for a stronger recovery to spur wage growth and make current cost-push inflation sustainable.
Several BOJ members called for continued monetary easing in the absence of wages growth, according to the summary. The word ¡°wage¡± came up 16 times in the summary, rising from 11 references at the June meeting.
In a quarterly economic outlook released at the end of the July gathering, the BOJ cut its growth forecast to 2.4% for the fiscal year ending in March. Unlike the U.S. and Europe, Japan¡¯s economy remains smaller than its pre-COVID-19 level and the latest projections suggested it will remain so this year.
Further complicating the economic picture, Japan¡¯s virus cases have skyrocketed over the past month, reaching a daily record. A couple of board members said the central bank should wait to make a decision on a special funding COVID-19 program until September, when it is scheduled to end.
One BOJ member said risks to the economy are on the downside, citing the renewed rise in infections at home and abroad. A government report showed Friday that Japan¡¯s retail sales unexpectedly dropped in June, casting a shadow over the robustness of consumer spending.
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