TOYAMA (Kyodo) Bank of Japan Policy Board member Shin Nakahara said Thursday an inflation rate of 1 percent to 2 percent growth is appropriate for price stability.
“Given the bias in the consumer price index, and a margin to stay out of negative territory, I believe a year-on-year rise of 1 to 2 percent in the CPI is appropriate for price stability,” Nakahara said in a speech to local business leaders in the city of Toyama.
In line with the end of the BOJ’s ultraloose monetary policy earlier this month, the central bank unveiled a new framework that says an inflation reference rate of zero to 2 percent is desirable for price stability in the medium term.
Nakahara’s remarks were the first time a BOJ Policy Board member has given a specific range of inflation needed to maintain price stability in the medium to long term.
On the inflation range presented by the BOJ, Nakahara said it is a significant step for the central bank to offer a specific number, although the importance of the range as anchor for price stability is limited because it is not a formal inflation target.
Nakahara has called on the BOJ to adopt such a target to boost transparency in monetary policy.
Nakahara said the BOJ is expected to hold short-term interest rates steady at close to zero until it lowers the current account deposit balance toward the legally required level of 6 trillion yen.
Looking ahead, Nakahara said the uptrend in the consumer price index is expected to continue, but added that the BOJ should keep monitoring structural factors that may put downward pressure on prices or economic growth, including administrative reforms, deregulation and the decline in the size of the country’s working population.
The BOJ ditched its five-year-old “quantitative easing” policy on March 9, switching back to targeting the unsecured overnight call rate as its main monetary tool, rather than the outstanding balance of current account deposits held by private financial institutions at the central bank.