Slow rate hikes could cause wage-price spiral, BOJ paper says

TOKYO, June 20 (Reuters) - Hiking interest rates only gradually as raw material costs rise could heighten the risk of an upward spiral in wages and consumer prices, the Bank of Japan said in a research paper released this week.
The paper's publication on Thursday comes as the central bank faces an increasingly complicated policy environment, with inflation at a more than two-year high and U.S. tariffs fanning economic uncertainty.
While the staff papers do not represent the BOJ's official view on monetary policy, they provide hints on key topics of attention within the central bank in setting interest rates.
The BOJ staff paper, using data from 2002 to 2024, analysed trends in Japan and Europe - which both rely heavily on imported commodities - to study the extent to which rising material costs led to second-round effects on inflation.
In Japan, the pass-through of prices from rising raw materials was more moderate than in Europe, the paper said.
The second-round effects were moderate but sustained in both Japan and Europe, it said.
"Both in Japan and Europe, the initial effects of high raw material costs were the main cause of inflationary trends since 2020. The second-round effects may have heightened the sustainability of price rises," the paper said.
Central banks typically raise interest rates to avoid second-round effects on inflation, or a state in which initial price shocks like higher energy costs trigger a spiral of rising wages and inflation that could lead to a broad-based, persistent inflationary environment.
A closer look at Japan's data suggested the BOJ's slow pace of interest rate hikes could be enhancing the second-round effects on inflation, the paper said.
Structural changes in Japan's labour market could also be making wages less rigid - or more likely to move flexibly reflecting a tight job market - and enhancing the second-round effects on inflation than in the past, the paper said.
The analysis comes amid heightening attention within the BOJ board on how persistent rises in food and raw material costs could affect underlying inflation, and households' perception of future price moves.
While uncertainty over U.S. tariff policy has put the BOJ on hold in raising interest rates, Governor Kazuo Ueda has signaled the bank's resolve to keep pushing up borrowing costs if Japan stays on course to durably hit the bank's 2% inflation target.
Japan's core inflation hit a more than two-year high in May and exceeded the central bank's 2% target for well over three years, keeping it under pressure to resume rate hikes despite economic headwinds from U.S. tariffs.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Reuters

22 minutes ago

• Reuters

Morocco's annual inflation drops to 0.4% in May

RABAT, June 20 (Reuters) - Morocco's annual inflation, measured by the consumer price index, dropped to 0.4% in May from 0.7% a month earlier, the North African country's statistics agency said on Friday. Food prices, the main driver of inflation, rose 0.5% from a year earlier, while non-food inflation increased 0.3%. Core inflation, which excludes more volatile goods such as food, was up 1.1% year-on-year and stable month-on-month.

The Independent

36 minutes ago

• The Independent

7 essential budgeting hacks for parents

Between high inflation pushing up the cost of everything, expensive (and rising) childcare prices and pressures to plan financially for an uncertain future, parenting is pricy right now. 'As a father of two young children, I know first-hand how costs for looking after the kids can quickly add up,' says Rajan Lakhani, personal finance expert and head of money at smart money app Plum. 'It's understandable that working families with children of all ages are really feeling the pinch, more so than ever before. While the latest inflation reading was 3.4%, the overall impact of inflation since 2021 means prices have risen by 25% overall, which is a major increase on our day-to-day finances.' Lakhani says all is not lost though and with some budgeting hacks, parents can cut costs and even have more in their pocket for spending or saving. 1. Commit to a quarterly spending review 'Firstly, you need to go through your finances and check what's really needed and to see if you're getting the best deals on things like insurance, mobile phone contracts and streaming packages,' says Lakhani. 'It can be really hard to find the time to manage your money alongside family life, so make it part of your routine to set aside some time each month to review your finances, pay any bills and create your budget. Do it on a day where you know you won't get interrupted and can give it your full attention. It is also helpful to have a yearly overview of your finances, he adds. 'You can easily review a whole year's worth of bank statements to check, or use an app to secure a good overview of your spending so you can see where your biggest outlays are. You want to get a sense of when in the year you spend more (e.g. Christmas) or have a higher income (e.g. due a tax rebate). This will help you plan your budget accordingly and not have any unpleasant surprises.' 2. Check your bills quarterly to make sure you are truly getting the best deal Broadband, electricity and gas are some of the most common bills that people forget to switch and compare, Lakhani says. 'It's estimated that consumers are losing up to £291 per year by not switching. 'It's advised that you review your energy provider as a matter of habit every 12-18 months, prepare for when your broadband contract ends and make sure you're comparing deals well in advance so you're ready to switch when the contract does come to an end. 3. Save money with pre-loved items 'If you have children you'll know how fast they grow and how quickly their interests change year to year, this is why it's better to embrace pre-loved clothing, books, and toys,' Lakhani advises. Try charity shops, eBay, Vinted and Facebook Marketplace. YoungPlanet, Rascal Babies and Mum2Mum Market are great places to find good quality, pre-loved items for very young children and babies. 4. Take advantage of special family deals and vouchers for days out Loyalty cards and railcards will often have family days out offers on their website or app for cardholders, he points out. 'For example, with a railcard you can occasionally get 2for1 deals on 'days out' to the zoo and the aquarium, as well as discounted cinema and theatre tickets. And when it comes to the travel itself, railcards often quickly pay back your initial costs. 'Some supermarket point schemes offer discounts on meals out, streaming services, holidays and more. 'And remember – one of the biggest costs of a day out are meals and refreshments. Avoid high prices by taking food and drink with you, as long as this is permitted. Check with your local council for free events too, many of these have no fees, he says. 'Events will often be at the local library, such as reading challenges and toddler groups, where you can often take advantage of free broadband while the kids immerse themselves in books.' 5. Teach older children about budgeting When you go on holiday, consider giving your teens a small allowance to spend, suggests Lakhani. 'This will help them to make their own decisions, take responsibility for money and learn how to stay within a budget. Even if they splurge it on just a couple of items quickly, it's an opportunity for them to learn so don't reprimand them. Just make sure to stay strong-willed and not give them any extra, otherwise you're reinforcing the wrong behaviours.' 6. Check for uniform grants worth £150 Fiona Peake, personal finance expert at Ocean Finance, says: 'Many councils offer uniform grants, especially for families on low incomes, benefits, or with multiple children starting school. These are usually one-off payments made in summer and can help with essentials like branded jumpers, school shoes or PE kit. But the support is rarely advertised, and some parents are missing out on over £150 per child. Check your council's website or speak to your child's school directly.' Also check with your school to see if they offer a recycled uniform scheme. 7. Take advantage of childcare savings Outside of your mortgage or rental costs, your childcare spending will be among your highest outlays, Lakhani points out – and UK costs are among the highest in Europe. But there are various tax breaks available which could take a big difference. The government offers tax-free childcare to parents with annual salaries up to £100,000. 'If you're paying for things like breakfast clubs, after-school care or holiday clubs, you could get a 25% top-up from the government,' says Peake. 'For every £8 you pay in, they add £2 – up to £500 every three months, or £1,000 if your child is disabled. It's open to parents working at least 16 hours per week, with children under 12 (or under 16 if they have a disability). Around 800,000 eligible families aren't claiming it, so it's worth checking at 'Working parents on Universal Credit can claim back up to 85% of childcare costs, even during school holidays. This often works out better than Tax-Free Childcare, especially for larger families,' she adds. It works out to a maximum of £1,032 for one child and £1,769 for two or more children – for children up to the age of 16.' You can get up to 30 funded hours of childcare a week if you have a three or four-year old (or from nine months old in England). Parents could work together to share childcare too, says Lakhani. If you know someone with a schedule that fits in with your childcare needs – and vice versa – you could think about looking after each other's children, if you trust them.

Coin Geek

an hour ago

• Coin Geek

Philippines to implement ‘crypto' tax framework by 2028

Getting your Trinity Audio player ready... The Philippine government has committed to adopt an international reporting framework for digital currency assets by 2028, aligning with global efforts to curb cross-border tax evasion and illicit financial flows. The move underscores the country's Department of Finance's (DoF) push to strengthen fiscal transparency as digital currencies become more mainstream in the country. 'We need faster and stronger systems for collaboration if we are to beat tax evasion and illicit transactions,' Ralph Recto, Finance Secretary, said in a statement. 'The government must ensure that crypto-asset users are paying their fair share of taxes and that no illicit financial activity goes unpunished.' Joining 67 jurisdictions in global tax transparency initiative Source: Department of Finance/Facebook During the 8th Asia Initiative Meeting held in Malé, Maldives, Finance Undersecretary Charlito Martin Mendoza formalized the country's commitment to adopt the Crypto-Asset Reporting Framework (CARF), developed by the Organisation for Economic Co-operation and Development (OECD). The CARF is designed to standardize the automatic exchange of tax information on crypto-assets across jurisdictions. The framework ensures that individuals and entities engaging in cross-border digital asset transactions cannot hide income or gains from tax authorities. The Philippines joins 67 jurisdictions, 10 of which are in Asia, that have pledged to implement the CARF by either 2027 or 2028. The timing of the country's commitment aligns with the end of President Ferdinand Marcos Jr.'s six-year term, during which fiscal discipline and transparency have been recurring themes. 'This is a timely commitment as digital currency becomes one of the preferred means for transactions,' Recto noted. Digital currency growth and risks in the Philippines Recto previously stated that Filipinos have invested an estimated PHP6 trillion ($107 billion) in digital currencies, more than double the combined size of the country's business process outsourcing and offshore gaming sectors. 'In the Philippines, a lot of Filipinos have already invested in crypto. Something like 6 trillion pesos worth of investments in crypto is being done,' Recto told Bloomberg in an interview earlier this year. He attributed this growth to a tech-savvy, youthful population and the widespread use of digital wallets, noting that 90 million Filipinos now use such tools to save, invest, and transact. However, third-party data paints a more measured picture. Blockchain analytics firm Chainalysis estimated the Philippines' 2024 crypto flows at $43.1 billion, down from $66 billion in 2023. The firm attributed the apparent 40% drop to revised methodologies for tracking decentralized finance (DeFi) activity. Despite the discrepancy, the numbers underscore the importance of tax authorities keeping pace with the rapid adoption of digital currencies. The decentralized and borderless nature of digital assets presents challenges for enforcement and taxation. Boosting exchange of information ahead of CARF rollout The DOF also reported on parallel efforts to improve tax transparency and compliance mechanisms. At the Asia Initiative Meeting, the department shared the country's progress in adopting the Convention on Mutual Administrative Assistance in Tax Matters (MAAC), a multilateral tool for tax assessment and collection cooperation. It also outlined the steps taken to prepare for the Enhanced Monitoring Process, the strengthening of the Exchange of Information (EOI) on request, and the adoption of the Common Reporting Standards (CRS). The Asia Initiative aims to enhance international cooperation on tax transparency and combating illicit financial flows. The Philippines became a member in 2023 and has since been working to align with globally agreed-upon standards. The meeting also marked the launch of the 2025 Tax Transparency in Asia Report, which details regional progress made in applying tax transparency frameworks throughout 2024. Globally, efforts in tax transparency have proven effective. From 2009 to 2024, at least €24 billion ($27 billion) in additional revenue has been identified through EOI, offshore investigations, AEOI (Automatic Exchange of Financial Account Information), and related disclosure programs. In 2024 alone, €1.9 billion ($2 billion) in undeclared income was identified through these means. Raising revenue without tax hikes The CARF commitment comes as the Marcos administration reiterates its intention not to introduce new taxes. Instead, it aims to increase state revenue through improved collection and enforcement. This policy direction already has been bearing results, according to the government agency. In April 2024, revenue collection reached PHP522.1 billion ($9 billion), bringing the total for the first four months to PHP1.5 trillion($26 billion). Of this, 94% came from taxes, thanks to an 11.49% increase in tax revenues. The DOF says the digital currency framework complements these efforts by plugging gaps in areas where tax evasion risks are highest. Watch: The Philippines is moving toward blockchain-enabled tech title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen="">