Defensive Mindset Among Reasons for Weak Inflation, BOJ Says

(Bloomberg) -- Women and senior citizens entering the workforce, low tolerance of higher prices among households and investments in labor-saving technology by companies are all reasons that inflation remains stubbornly low in Japan, the central bank said in report on Tuesday.

Rising prices generally make consumers defensive about spending, so stronger wage gains are critical for households to accept price increases, the central bank said in an analysis of wages and prices. That defensiveness hinders the positive feedback between an improving economy and inflation, it said after its two-day policy meeting.

The central bank on Tuesday announced changes to its radical stimulus program, with the goal of making it more sustainable in the prolonged battle to stoke inflation. Inflation remains at less than half its 2 percent target, even after five years of extraordinary stimulus.

For households to be more tolerant of price increases, it is necessary to avoid sharp rises in inflation and to promote improvements in the labor market, wages and growth expectations, the BOJ said.

Wage gains have also been limited because regular workers -- generally permanent, full-time employees -- tend to focus on job security over higher wages, the central bank said.

The central bank also cited rising numbers of women and senior citizens entering the workforce as a drag on wages.

Companies also remain cautious about raising prices, and investments in labor-saving technology -- instead of hiring people -- are also limiting upward pressure on wages.

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