BANGKOK – Taku Yamasaki, secretary general of the ruling Liberal Democratic Party, said Tuesday that the reform program of Prime Minister Junichiro Koizumi may cause economic growth to stay below 1 percent for two to three years, party officials said.
Yamasaki made the remarks during talks with Thai Prime Minister Thaksin Shinawatra in Bangkok. Yamasaki is on a nine-day visit to five Southeast Asian countries.
In his talks with Thaksin, Yamasaki said Koizumi’s reforms will likely take the Japanese economy through temporary stagnation, the officials said.
“But after the initial, intensive adjustment period, the Japanese economy will surely regain its growth potential,” Yamasaki was quoted as saying.
He also referred to Japan possibly being forced to restrain its economic aid to Southeast Asian countries due to the slowdown.
Inflation goal rejected
An inflation target would be ineffective at a time of deflation, Taro Aso, policy chief of the ruling Liberal Democratic Party, said Tuesday.
Downplaying growing calls for the Bank of Japan to adopt such a policy, Aso told reporters that although an inflation target has been used in the past to ease soaring inflation, it would be “ineffective in the absence of demand for funds.”
His comment comes amid increasing calls by some government and LDP leaders for an inflation target to prevent falling prices from developing into a deflationary spiral.
Finance Minister Masajuro Shiokawa expressed hope Tuesday that the Bank of Japan will continue to ease its grip on credit in an effort to combat deflation.
He added, however, that he is cautious about urging the central bank to introduce an inflation target.
“Price falls are not good,” Shiokawa said on a morning television show, adding the BOJ needs to adopt policies to lift and stabilize prices.
But he took a cautious line on the issue of pressing the BOJ to set an inflation target.
Heizo Takenaka, minister in charge of economic and fiscal policy, has been joined by a number of politicians in the ruling coalition by issuing demands of this kind in the past. “Adjusted inflation is dangerous,” Shiokawa said. “It may work well temporarily, but it may eventually damage the economy.”
Shiokawa also told reporters earlier in the day that he is not considering intervening in the currency market to arrest the yen’s recent increase against the dollar.
The current exchange level “does not reflect each country’s economic fundamentals,” Shiokawa said.
While noting that Japanese authorities are monitoring the foreign exchange market with concern, the finance minister said, “We have to consult with other countries if we encounter an abnormal situation.”
He extolled an optimistic view of Japanese share prices, saying their recent deterioration stems from movements in the U.S. stock market and concerns over information technology-related sectors.
Shiokawa said he is confident that share prices will recover because IT-related companies have implemented measures to combat the severe business environment.
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