Business | Economy

Bank of Japan to act if global slowdown threatens price goal

Japan’s economy recovering, on track to meet inflation target

  • Reuters
  • Published: 17:41 October 18, 2013
  • Gulf News

Tokyo: Slowing global growth and U.S. fiscal woes are among key risks to Japan’s economy, the Bank of Japan’s deputy governor said, stressing the central bank’s readiness to ease monetary policy further if its 2 per cent inflation target comes under threat.

But Kikuo Iwata said that for now, Japan’s economy is on track for a steady recovery and will gradually see price increases accelerate toward 2 per cent, thanks in part to a fiscal stimulus package planned by the government.

“If, in light of global uncertainties, the achievement of our 2 per cent inflation target becomes difficult, it’s necessary to take further policy action,” Iwata said at an university symposium in Tokyo on Friday.

Iwata, a former academic known as a strong advocate of reflationary policies, played a key role in crafting the BOJ’s monetary stimulus framework put in place in April. The bank aims to double the country’s base money to raise the inflation rate to 2 per cent in roughly two years.

Japan’s economy is moving in line with the BOJ’s projection of a moderate recovery, with personal consumption acting as a key driver of growth and companies gradually increasing capital expenditure, he said.

Core consumer prices rose 0.8 per cent in August from a year earlier, the fastest pace of growth in nearly five years, although most of the increase was due to rising energy prices and a weak yen that inflated the cost of raw material imports.

But the global economic outlook has deteriorated compared with when the BOJ launched its intense stimulus in April, Iwata said, warning that any risks which could threaten achievement of the 2 per cent inflation target would be from overseas.

He said that uncertainty over U.S. fiscal policy “will continue to serve as a big constraint and downside risk” to U.S. growth. Slowing Asian growth could also weigh on Japanese exports, the deputy governor added.

“If such overseas risks become big enough to make our current monetary stimulus insufficient to achieve 2 per cent inflation, we’re ready to take some form of action,” Iwata said.

He added, however, the pain for Japan’s economy from the overseas slowdown will be somewhat offset by the government’s 5 trillion yen (Dh188 billion) fiscal stimulus package aimed at cushioning the hit from next year’s sales tax hike.

Iwata also said the decision on whether more stimulus is needed to get 2 per cent inflation would be made from a long-term perspective. He said he could not comment on what kind of steps would be considered if the BOJ were to act further.

Every month, the BOJ now buys roughly 7 trillion yen in government bonds, as well as risky assets, to pump money into the economy under its intense monetary stimulus framework launched in April. It has stood pat on monetary policy since then.

In a separate speech on Friday, BOJ Governor Haruhiko Kuroda said the effects of the bank’s monetary stimulus are firmly emerging on economic activity.

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