TOKYO: Japanese Prime Minister Shinzo Abe said he “understands” the central bank’s inflation target is getting more difficult to achieve as energy prices slump.
“With oil prices plunging, we think it’s unavoidable that it hasn’t been able to achieve its original objective,” Abe said in parliament on Monday. “We understand the Bank of Japan’s explanation that achieving the target is in fact getting difficult.”
The comments suggest that the government is — for now — sympathetic with Governor Haruhiko Kuroda’s plight, as a sell off in stocks, commodities and oil prices deepens, threatening to damage confidence and stoke deflationary pressures. Data Friday are forecast to show the BOJ’s key inflation gauge falling below zero for the first time since Kuroda introduced record monetary stimulus more than two years ago.
Abe said he has “confidence in Kuroda’s skill.”
The central bank chief boosted the BOJ’s asset purchase programme last October as a drop in oil prices threatened to intensify a “deflationary mindset” in the economy. The 2 per cent inflation goal that he sought to reach in about two years when he began the stimulus plan in April 2013 will be achieved around the six months through September 2016, Kuroda said on August 7 when the BOJ kept its policy unchanged.
The BOJ adopted the 2 per cent goal in January 2013 after it struck a pact with Abe’s government to end 15 years of deflation. The stimulus that Kuroda unleashed months later drove down the yen, supporting export-oriented parts of Japan’s economy while boosting import prices — sparking a backlash from some politicians concerned about the extra costs heaped on households.
The economy risks a weak rebound from a contraction last quarter, with consumer confidence falling to a six-month low in July and manufacturers loaded in June with the most inventory since 2009.
Some economists cut their forecasts for the economy last week after data showed gross domestic product slid an annualised 1.6 per cent in the three months through June.
