According to Tomoko Hayashi, the government’s chief economist, Japan can uphold its longstanding commitment to combat deflation even if the Bank of Japan (BOJ) were to discontinue its massive stimulus measures, including negative interest rates.
Initiated under former Prime Minister Shinzo Abe’s push for more aggressive measures against deflation, the BOJ and the government jointly pledged in 2013 to achieve a 2% inflation target at the earliest opportunity.
This commitment has formed the foundation of the BOJ’s unconventional monetary policies, including ultra-low interest rates, spearheaded by former Governor Haruhiko Kuroda.
Despite suggestions that the inflation target has become outdated due to prolonged inflation above 2%, prompting discussions about ending negative interest rates, Hayashi emphasizes that the significance of the target remains unchanged.
Hayashi stresses the ongoing importance of policy coordination between the government and the central bank to prevent a resurgence of deflation.
Having played a role in drafting the joint statement, Hayashi underscores its enduring relevance and the critical role it plays in guiding economic policies.
While discussions about revising the statement have surfaced, Hayashi acknowledges the potential implications such changes could have on policy decisions and priorities.
Prime Minister Fumio Kishida, emphasizing close communication between the government and the BOJ, underscores the importance of aligning monetary policy with broader economic revitalization efforts.
Declaring a permanent end to deflation is a key focus for Kishida’s administration, with efforts aimed at boosting wages to counter rising living costs.
Kishida’s prioritization of economic revitalization aligns with the government’s aim to establish a positive wage-inflation cycle, potentially signaling a shift away from deflationary pressures.
BOJ Governor Kazuo Ueda’s recent policy adjustments suggest a move towards scaling back stimulus measures, including negative interest rates, a trend expected to continue in the coming months.
In summary, despite potential changes in BOJ policy, Japan remains committed to combating deflation and fostering economic stability through coordinated efforts between the government and the central bank.
