The Bank of Japan (BOJ) might have to pursue its monetary policy easing for “some time” to fully solve the problem of deflation, Governor Haruhiko Kuroda said on Saturday.
Speaking at a global central banking conference in Jackson Hole, Wyoming, Kuroda said the central bank’s efforts to overcome deflation by stimulating the Japanese economy with large-scale asset purchases was proving effective.
He added, however, that the public was not yet convinced Japan’s central bank would hit its 2 percent inflation target. Creating that expectation was necessary to get firms to raise wages — a key step in Japan’s long war with deflation, he said.
Photo: Reuters
“We have committed ourselves to continuing the increasingly accommodative stance until the 2 percent inflation target is met and maintained in a sustainable manner,” Kuroda said. “That means inflation expectations are anchored to 2 percent ... [and] that may take some more time.”
The BOJ deployed an intense burst of monetary stimulus last April, when it pledged to double its monetary base with a quantitative easing program of asset purchases. Kuroda wants to accelerate consumer inflation to 2 percent in about two years.
Japan has been mired in 15 years of grinding deflation.
The program was initially successful, with consumer inflation recently hitting 1.3 percent, excluding the impact of a tax hike on sales in April.
Inflation is expected to slow in the coming months as the boost from the weak yen on import costs begins to fade.
Speaking as part of a panel alongside central bankers from Brazil and the UK, Kuroda said forecasts for public inflation are moving up gradually but are still low at around 1 percent.
Low long-term interest rates are not likely to rise until the 2 percent target is reached, he said, adding that the bank’s 2 percent inflation target, once met, would serve as a benchmark for wage negotiations.
Turning to labor markets, which were the focus of the high-profile conference, Kuroda said Japan is showing “significant improvement,” though it still faces challenges including a large proportion of part-time workers in the service sector.
The quantitative easing stimulus is helping Japan escape from a deflationary cycle of falling wages and demand, he said, adding that the BOJ is trying to manage the program to avoid an “abrupt shock” to markets.
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