JACKSON, HOLE WYOMING – The Bank of Japan may have to pursue its aggressive monetary policy easing for “some time” to fully vanquish deflation, BOJ Gov. Haruhiko Kuroda said Saturday.
Speaking at a global central banking conference in Jackson Hole, Wyoming, Kuroda said the central bank’s efforts to overcome deflation by stimulating Japan’s economy with large-scale asset purchases was proving effective.
He added, however, that the public is not yet convinced the central bank will hit its 2 percent inflation target. Creating that expectation is necessary to get firms to raise wages — a key step in Japan’s long war with deflation, he said.
“We have committed ourselves to continuing the increasingly accommodative stance until the 2 percent inflation target is met and maintained in a sustainable manner,” Kuroda said. “That means inflation expectations are anchored to 2 percent . . . (and) that may take some more time.”
The BOJ deployed an intense burst of monetary stimulus last April, when pledging to double its money base with a “qualitative and quantitative” easing program of asset purchases. Kuroda wants to accelerate consumer inflation to 2 percent in roughly two years. Japan has been mired in 15 years of grinding deflation.
The program was initially successful, with inflation having recently hit 1.3 percent, excluding the impact of an April sales tax hike. Inflation is expected to slow in the coming months as the boost from a weak yen on import costs begins to fade.
Speaking on a panel alongside central bankers from Brazil and Britain, Kuroda said public inflation expectations are moving up gradually but still low at around 1 percent.
Low long-term interest rates will likely not rise until the 2 percent target is reached, he said, adding that the BOJ’s 2 percent inflation target, once met, could serve as a benchmark for wage negotiations.
Turning to labor markets, which was the focus of the high-profile Jackson Hole conference, Kuroda said Japan is showing “significant improvement,” though it still faces challenges including a large share of part-time workers in the service sector.
The quantitative easing stimulus is helping Japan escape from a deflationary cycle of falling wages and demand, he said, adding that the BOJ is trying to manage the program to avoid any “abrupt shock” to markets.
He also said Japan needs a favorable work environment for female and older workers to help counter its declining labor force.
Bank of England Deputy Gov. Ben Broadbent, speaking on the same panel, said in a prepared speech that slow wage growth is not certain to pick up soon in Britain, despite signs of skills shortages. He added that the BoE will not raise rates until there is a clear prospect of stronger wage growth.
In separate remarks, Broadbent said the BoE’s new financial stability goals were not in conflict with its inflation and growth goals. He also said there are potential but surmountable “coordination issues” between the BoE’s new financial stability committee and other bank functions.
“There is not a first-mover advantage to any of the bodies. They meet pretty regularly and share three members,” Broadbent said.