Fujii: An inflation target would hit workers, aged

by Sachiko Sakamaki and Takashi Hirokawa

Bloomberg

Former Finance Minister Hirohisa Fujii said he opposes Bank of Japan inflation targets proposed by members of his ruling party because rising consumer prices would hurt the elderly and salaried workers.

“I’m very much opposed,” Fujii said in a interview earlier this week at his office in Tokyo. “We must not invite inflation.”

Fujii is the latest voice to come out against the proposal to fight Japan’s prolonged deflation by, as one step, revising a 1998 law that ensures the central bank’s autonomy. Former Bank of Japan Deputy Gov. Toshiro Muto said Monday that such a policy would do little to end price declines in the world’s second-largest economy.

Fujii, 78, a Lower House lawmaker from the Democratic Party of Japan, said the government shouldn’t use the central bank as its “tool.” Once the government begins asking the central bank to comply with its wishes the requests are bound to become more “forceful,” he said.

Until 1998, the BOJ operated under a law enacted during the war that allowed the government to safeguard military funding. The statute helped financing for unsustainable military campaigns, Fujii said.

“Those making such a proposal haven’t studied history,” he said.

The government should instead implement measures to spur growth to fight deflation, such as promoting green technologies and improved care for the elderly and children, Fujii said.

A group of more than 150 DPJ lawmakers asked Prime Minister Naoto Kan last week to allow the BOJ to buy long-term government bonds and follow a policy of setting an inflation target of 2 percent to 3 percent. Fujii stepped down as finance minister in January for health reasons and was replaced by Kan in the post before he became prime minister.

Consumer prices have fallen for 16 straight months, and a rising yen threatens to contribute to deflation by lowering import costs.

“It’s unlikely to happen because it’s a low priority for the DPJ,” Yasunori Sone, a political science professor at Tokyo’s Keio University, said about changing the BOJ law to set targets.

Fujii also criticized Kan for comments suggesting the government should raise the 5 percent consumption tax to curb the world’s largest public debt.

“What the prime minister said was thoughtless,” Fujii said, adding that the remarks are contrary to the party’s campaign pledge.

Since taking office in June, Kan has vowed to curb the nation’s deficit and said he’ll consider the Liberal Democratic Party proposal to double the sales tax to 10 percent. Support for Kan dropped and the DPJ-led bloc lost control of the Upper House in July 11 election.