Japan’s political and economic leadership announced a New Year resolve on Monday to stoke consumer prices, a campaign that could fuel expectations of yet more monetary stimulus to meet the central bank’s 2 percent price target.
Bank of Japan Governor Haruhiko Kuroda said he was ready to take bolder steps to accelerate inflation, joining in with Prime Minister Shinzo Abe, who said on Monday the government would work with the BOJ to eliminate the risk of a return to deflation.
Finance Minister Taro Aso joined the premier and Kuroda in the new year drive to press their economic agenda, stressing that Japan was shaking off deflation three years after Abe swept to power pledging to revive the economy with his “Abenomics” stimulus policies.”As I’ve always said, we are prepared to take even bolder steps if we judge necessary,” Kuroda said.
“We will do whatever it takes, and I want to strongly say we will absolutely meet our 2 percent price target”
Their comments come as Japan faces a commodities sell-off that may force the BOJ to yet again lower its consumer price forecasts when it meets later this month, which would bolster the argument that extra stimulus is needed to prevent the price trend from worsening.
Since Kuroda launched quantitative easing in April 2013 the BOJ has three times extended the timing by when it would achieve its price target.
The BOJ now expects to meet its 2 percent inflation target some time around the second half of fiscal 2016, but even this time frame may not survive the BOJ’s review of its long-term forecasts at a meeting on Jan. 28-29.
Japan has been in grinding deflation since the late 1990s after a property bubble burst earlier that decade. Massive pump priming by the government and monetary stimulus by the central bank have failed to reflate the economy or generate much growth as Japan suffered two so-called “lost decades”.
NO LONGER IN DEFLATION
Abe said whether inflation accelerates depends on major capital expenditure and wage growth, maintaining his moral suasion on companies to invest more to sustain a virtuous cycle of consumption and growth.
“We are still half-way but we have created a situation that is no longer seen as deflation,” Abe told a news conference.
When later asked whether such statement may be taken as hasty judgement on deflation, Abe said Japan has still not completely conquered deflation and that the government and the BOJ will work as one to defeat deflation.
Aso echoed Abe’s view, saying “Japan is exiting the deflationary slump.”
“We’ll ensure steps towards achieving a strong economy while responding to downside economic risks as appropriate,” Aso told parliament as he presented Abe’s supplementary budget plan to add extra economic stimulus.
Japan’s core consumer inflation was 0.1 percent in the year to November, rising for the first time in three months, underlining Japan’s uphill struggle to foster price growth in the face of tumbling oil prices.
A separate BOJ index that excludes oil and fresh food – but includes processed food prices – showed consumer prices rose 1.2 percent in the year to November, an outcome some economists say is still too far away from the BOJ’s 2 percent price target to warrant much optimism.
Source: Reuters (By Stanley White and Tetsushi Kajimoto; Additional reporting by Taiga Uranaka; Editing by Simon Cameron-Moore and Eric Meijer)