Japan is closer to conquering chronic deflation with monetary policy working as hoped, Bank of Japan Deputy Gov. Hiroshi Nakaso said Wednesday.
"Japan's economy is likely to achieve an inflation rate of about 2 percent in or around fiscal 2015, and thereafter gradually shift to a growth path that sustains such inflation in a stable manner," Nakaso said in a speech to business leaders in Shizuoka Prefecture.
The "conquest of deflation in Japan is now in sight," he said, although acknowledging that the BOJ is still "only halfway toward achieving" the inflation goal under its aggressive monetary easing, introduced in April 2013 and including massive purchases of Japanese government bonds and other financial assets from banks.
Nakaso noted as a positive factor that companies and households have started behaving on expectations that prices will increase, referring to the fact that many firms raised base pay in the annual wage talks this spring.
To meet the inflation target, Nakaso said the BOJ will focus on "whether the mechanism underlying the upward trend in inflation remains in place," suggesting the bank will not overreact to price data each month.
The core consumer price index, excluding volatile fresh food prices, has kept increasing since the BOJ introduced "quantitative and qualitative" easing to boost the economy by doubling the money it provides to the banking system through the asset purchase program.
The BOJ expects the CPI growth to slow this summer but accelerate again in the fall.