Reaching the newly adopted 2 percent inflation target will require a “substantial effort,” including government policies that will boost economic growth, Bank of Japan Gov. Masaaki Shirakawa said Friday.
Pointing out that the economy has averaged about 0.5 percent inflation over the last 20 years, Shirakawa said the BOJ can’t single-handedly tackle the new quest through its monetary policies.
“Bold deregulation measures should be put forward” by the government, Shirakawa said during a speech at the Japan National Press Club in Tokyo, adding the Liberal Democratic Party-led administration also must stimulate economic growth.
The BOJ adopted a 2 percent inflation target Tuesday and introduced an “open-ended” asset purchase program in further easing its monetary policies. The bank and government also released a rare joint statement in which they agreed to coordinate closely to fend off deflation.
On releasing the accord with the government, Shirakawa explained that the decision was thoroughly examined not only by himself but by all of the BOJ’s Policy Board members.
“Under the current circumstances of the Japanese economy, we felt it necessary” to coordinate closer with the government, Shirakawa said.
The BOJ chief brushed off criticism that the bank caved in to pressure from Prime Minister Shinzo Abe.
“The bank’s independence is guaranteed as inscribed in the Bank of Japan Law,” he said, adding that both the government and the BOJ are clear on what each other’s roles are in overcoming deflation.
Meanwhile, Shirakawa strove to keep the big-spending administration in check, saying it is imperative for any government to seek a healthy fiscal balance in order to avoid an economic crisis, as illustrated by Europe’s sovereign debt issues.
Shirakawa’s term as BOJ governor ends in April. Asked if he would have done anything differently during his tenure, he declined to comment, saying that such a remark would be inappropriate and against his beliefs.
Aso denies meddling
Finance Minister Taro Aso on Friday brushed aside growing criticism that Japan is trying to manipulate its currency by forcing the Bank of Japan to take drastic easing steps and said the purpose of the sudden change in monetary policy is to beat deflation.
“Monetary easing is aimed at ending deflation as soon as possible, so the criticism that it is foreign-exchange manipulation is groundless,” Aso said, noting the yen’s value is currently undergoing a correction from its “one-sided” and “excessive” appreciation.
His remarks came after German Chancellor Angela Merkel expressed concern to Japan on Thursday about its exchange rate policy after two other key German financial officials criticized the BOJ’s move to ease monetary policy under political pressure from the government.