Tokyo: Japan's Finance Minister Naoto Kan reiterated his desire to target inflation, setting up a clash with the Bank of Japan over how best to pull the country out of deflation.
Kan, speaking in an interview with the Yomiuri newspaper published yesterday, said that a 1 per cent rise in prices was desirable and that the central bank basically held the same view. He also told parliament yesterday that while the government will take steps to boost domestic demand, he wanted the BOJ to do its part to overcome persistent price falls.
"It would be more difficult to restore Japan's fin-ances without beating deflation," Kan told a lower house budget committee.
"I hope the BOJ will strive to pull Japan out of deflation, in sync with [government efforts]."
The government fears deflation and a strong yen could hurt Japan's fragile recovery ahead of elections in the summer, but it is limited in what it can do by the country's massive public debt. As one way to finance its spending, the finance minister also told the Yomiuri paper he would consider devoting sales tax revenue to welfare costs, suggesting a sales tax hike may be possible in future as Japan's ageing society means health costs are likely to grow.
But ratings agency Standard and Poor's downplayed the benefit of any such hike if done too early.
