Japan’s finance minister said he would like to see price growth of 1 percent and urged the Bank of Japan (BOJ) to cooperate in beating deflation, putting fresh pressure on the central bank for more action to support a fragile economy.
BOJ Governor Masaaki Shirakawa said the central bank was willing to cooperate, but he offered few clues on what it would do beyond keeping monetary conditions very easy.
“I personally would like to see [consumer price index, or CPI] growth of around 1 percent, or perhaps even a little more,” Naoto Kan told a lower house budget committee yesterday.
“I think the BOJ shares the government’s view that this is a desirable policy goal,” he said, adding that how best to achieve the goal was up to the central bank to decide.
INTEREST RATE
The BOJ is likely to keep interest rates at 0.1 percent and hold off on any new initiatives at a rate review ending yesterday, as it expects Japan to avoid another recession despite a likely slowdown early this year.
The bank does, however, appear to be ready to ease policy again in the future if market shocks, such as a sharp rise in the yen or a heavy tumble in Tokyo shares, threaten a fragile economic recovery.
Shirakawa, addressing the same budget committee as Kan, repeated that the BOJ would keep monetary conditions very easy and was always ready to provide liquidity when necessary.
“We are serious about ending deflation. It will take time and it’s not something the BOJ alone can achieve. But we will be doing all we can,” he said.
However, he effectively ruled out any return to quantitative easing, a policy under which the BOJ flooded markets with excess cash from 2001 to 2006 in a bid to end an earlier bout of deflation.
Quantitative easing was effective in ensuring financial stability, but it had only a limited effect in pushing up prices, Shirakawa said.
Japan’s economy grew faster than expected in the fourth quarter owing to a stimulus-fueled rebound in domestic demand and corporate investment. However, markets focused on the record 3 percent annual fall in the GDP deflator as a sign that the gap between supply and demand was pushing Japan deeper into deflation.
“[Deflation] is unlikely to result in immediate easing, but it will keep up the pressure on the Bank of Japan to continue with an easy monetary policy,” said Takafumi Yamawaki, a senior rates strategist at BNP Paribas Securities.
CORE CPI
Japan’s core CPI fell from a year earlier for the 10th straight month in December and the so-called “core-core” CPI, the narrowest measure of consumer inflation, fell at the fastest pace on record.
Haruhiko Kuroda, the head of the Asian Development Bank, also urged the BOJ to work out a solution for persistent price falls, telling a newspaper interview that Japan was virtually alone in suffering deflation.
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