Japan’s absence of “concrete reform plans” for the nation’s finances may be contributing to deflation and sluggish economic growth by discouraging spending by the public, Bank of Japan Governor Masaaki Shirakawa said.
Consumers may be limiting spending “on concerns over future fiscal developments,” Shirakawa said in remarks prepared for an event in Washington on Saturday.
This may be “one factor behind sluggish economic growth and mild deflation,” he said.
The Bank of Japan is under pressure from lawmakers to step up its attack on more than -decade-long deflation as the government seeks to sustain a recovery from last year’s earthquake and economic contraction. Shirakawa has pledged to extend “powerful” easing until a 1 percent price goal is in sight and his policy board next meets on Friday.
The nation’s borrowings will exceed ￥1,000 trillion (US$12.4 trillion) for the first time in this fiscal year, the Japanese Ministry of Finance projects, while the Organisation for Economic Co--operation and Development (OECD) predicts Japan’s public debt will reach 219 percent of GDP.
Shirakawa said that stability in Japanese government bond yields shows investors’ expectations that “fiscal soundness will be restored through structural reforms in both the economic and fiscal areas.”
“At the moment, such expectations are not firmly backed by concrete reform plans,” he said.
The Bank of Japan will this week forecast that prices are set to rise less than 1 percent next fiscal year, a report said yesterday, boosting the chances of fresh easing measures to stimulate the economy.
The bank is likely to predict inflation will be lower than the 1 percent target for the fiscal year starting in April next year in its twice-yearly report on Friday, public broadcaster NHK said.
With Japan still mired in deflation, the central bank would discuss whether additional monetary easing was necessary, NHK said, without citing sources.
Stubborn deflation has haunted Japan for years, as falling prices cut into corporate profits, leading firms to slash jobs and put off capital investment that generates growth, while also encouraging consumers to delay purchases.
In February, the central bank for the first time set a target level for inflation, saying that it had a price stability “goal” of 2 percent in the medium to long-term and 1 percent in the short term.
Last month, the bank boosted a loan program by ￥2 trillion to ￥5 trillion amid reconstruction efforts seen as crucial to reviving the economy, which was hammered by last year’s quake-tsunami disaster and flooding in Thailand.
The central bank’s ability to free up money has been limited since interest rates were cut to between zero and 0.1 percent at the end of 2008 during the global financial crisis.