By Anton Bridge and Miho Uranaka
TOKYO, July 7 (Reuters) - The CEO of Japan's largest banking group warned that sustained inflation driven by a depreciating yen could hit consumer sentiment and the import-dependent country's economic growth.
Weak consumption may derail Prime Minister Sanae Takaichi's efforts to revive the Japanese economy as the government embarks on an ambitious economic programme, which includes investment in growth sectors and a temporary cut in consumption tax on food.
"I'm extremely
troubled by the prospect of a weakened yen leading to widespread, sustained inflation in Japan," Junichi Hanzawa, chief executive of Mitsubishi UFJ Financial Group, said in an interview with Reuters.
"If price rises exceed real wages, that will hit consumption. This would be a minus to sustainable economic growth. That's my greatest concern," Hanzawa said.
While the end of deflation has been a boon for Japanese banks as loan demand for investment has surged, employees' real wages have been negative for the four years to the end of 2025, labour ministry data showed.
Japan has spent much of the past three decades battling deflation after the collapse of its asset bubble in the early 1990s ushered in years of weak growth, stagnant wages and entrenched expectations that prices would remain flat or fall.
The Bank of Japan raised interest rates to a 31-year high of 1% in June but that did not arrest the yen's decline. The currency hit a 40-year low of 162.66 yen against the dollar last week.
Hanzawa declined to comment on the yen's current level.
Japan is reliant on imports for the majority of its food and energy. The U.S.-Israeli war on Iran and disruption to energy supplies pushed up annual core inflation in Tokyo in June.
Prime Minister Takaichi is known to favour low interest rates that support an expansionary fiscal policy.
"I think it is extremely important to curb inflation so as to prevent negative real incomes," Hanzawa said.
The BOJ has indicated it would continue to raise rates, focusing on the risk of inflation deviating upward from its 2% target.
(Reporting by Anton Bridge and Miho Uranaka; Editing by Jacqueline Wong)
