By Leika Kihara

TOKYO, Reuters -Bank of Japan cannot increase stimulus if Omicron cases spikes cause huge market turbulence. Seiji Adachi, a board member, said that the Bank of Japan could hold off unless such a scenario occurs. This suggests policymakers will be cautious as they assess the risk posed by this variant.

Adachi is a former economist who was considered to be one of those favoring aggressive monetary ease. He also stated that inflationary pressures were being caused by both rising energy prices and changing behaviours regarding price setting.

Adachi stated in a Wednesday speech that “As the pandemic begins to subside, companies gradually start to increase goods and services prices.”

Businesses may be able to find opportunities to raise wages and price in an environment after a pandemic.

Japan’s wholesale inflation reached 8.0% in October, a record high for the country. This was due to rising commodity prices. However, core consumer inflation remains at zero since firms have resisted raising prices through soft consumption.

Adachi stressed that the BOJ should maintain its current policy of ultra-loose lending, but he stated that increasing stimulus will only be an option in cases in which a resurgence or deterioration in infection threatens the global economy.

Adachi stated that the BOJ should consider additional easing measures if there are any developments around the pandemic, such as a stock price drop and yen surge.

Adachi indicated that he is unsure if Adachi should allow the BOJ to extend the March 2022 deadline on pandemic-relief funds schemes. These funding programs were established last year for cash-strapped businesses.

The funding situation for large firms has improved significantly, with many paying back loans. Adachi noted that Omicron is spreading rapidly and that there is a lot more uncertainty. I would love to see more developments.”

BOJ expects to maintain monetary policy at its December 16-17th meeting. It may decide the fate of pandemic relief programmes.

Adachi ignored concerns that the recent decline in the yen could cause higher import costs. It also may lead to stagflation. In this situation, inflation increases even though the economy remains weak.

Adachi stated that he personally doesn’t believe Japan faces a “bad weak yen” situation that could cause stagflation.

“The recent fall in the yen actually brings benefits to our economy,” he said, adding that Japanese businesses have been able to reap more profits overseas because of it.