The domestic economy is currently not on the verge of entering a deflationary spiral, Bank of Japan Gov. Masaru Hayami said Thursday, adding that he will monitor the effects of governmental pump-priming efforts.
Speaking at a news conference, Hayami acknowledged that both wholesale and consumer prices are falling, but that it is uncertain whether the situation was largely due to excessive supply.
“The government’s latest stimulus package has new features and is large in scale, and I think (its implementation) will be a positive factor, and I would like to wait further” to check its impact, the BOJ chief said. “I do not believe that the current economic situation can be labeled the beginning of a deflationary spiral,” he stressed, adding that the central bank would leave monetary policy unchanged for the time being.
Earlier Thursday, the BOJ said in its monthly report that current downward pressure on the economy can be expected to ease following implementation of the 16 trillion yen stimulus package. The package likely will be implemented next month.
The report also hints that the BOJ is keeping a close watch for signs of a possible deflationary spiral, saying the economy “continues to be stagnant, and that downward pressure on economic activity in general remains strong. The cycle of production, income and spending has begun to turn in a negative direction.”
But the BOJ said the additional fiscal spending and special income tax cuts included in the government’s pump-priming package could put the brakes on a further backslide of the economy.
“The improvement of corporate and household confidence is imperative for the economy to return to a self-sustaining recovery course, and we will continue to keep close watch on economic activity,” the report says.
The decline in public investment is slowing, but growth in net exports, which have so far been buttressing the economy, is showing signs of slowing due to a decrease in Asia-bound exports.
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