Board member Seiji Adachi said the Bank of Japan can hold off on boosting stimulus until a spike in Omicron cases causes massive market volatility, implying policymakers will tread carefully as they assess the risks posed by the variant.

Inflationary pressures in Japan, according to Adachi, a former economist who is among those who want aggressive monetary easing, are being driven up not only by increasing energy costs but also by shifting business price-setting behaviour.

Adachi stated, "as the pandemic shows signs of subsiding, businesses are gradually starting to boost goods and service costs. Businesses may find good opportunities to raise prices and wages in a post-pandemic environment."

On rising commodity costs, Japan's annual wholesale inflation touched a four-decade high of 8.0% in October. However, core consumer inflation has remained around zero, since firms have refrained from boosting prices due to soft consumption.

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While Adachi emphasised the importance of maintaining the BoJ's current ultra-loose policy, he added that further stimulus would only be considered in extreme scenarios, such as if an outbreak of infections paralysed the global economy.

"The BOJ must consider further easing measures only if developments surrounding the pandemic result in a yen surge and stock price decline, and only if such market conditions persist," Adachi said.

Adachi said he wasn't sure if the BoJ should extend a March 2022 deadline for pandemic-relief funding programmes introduced last year to support cash-strapped businesses.

"The funding conditions for large businesses have improved considerably with some repaying loans. The Omicron variant, on the other hand, is spreading and there is a lot of uncertainty about it" Adachi said. "I would like to scrutinise developments a bit more and see the impact of Omicron before deciding on COVID assistance.”