Bank of Japan Gov. Masaaki Shirakawa said Friday there is no easy solution to end deflation and monetary policies to increase liquidity will not be enough to stop prices falling.
"There is no magic wand," Shirakawa said at a seminar held at a hotel in Tokyo. "Once financial system instability is overcome, an increase in liquidity alone cannot resolve deflation," he said.
To counter deflation and achieve sustainable growth, Shirakawa suggested firms should make efforts to seek out overseas demand, especially in emerging economies.
"Regarding the growth of emerging economies only as a threat is not a very well-balanced view," he said.
Shirakawa said demand for environmental technologies, which Japan excels at, will grow if China and India continue to motorize at their current brisk pace, and thus increase the burden on the global environment.
The governor argued that the fundamental cause of deflation is sluggish demand, urging Japanese firms to come up with ways to tap potential demand and enhance productivity.
"What is important, therefore, are efforts by firms to adapt existing human and management resources to new markets in order to link potential needs with actual demand," Shirakawa said.
"Potential needs in such areas as nursing and care services are quite big," he said. "So the challenge is to make efforts to convert potential need into actual demand. Entrepreneurs and innovators are needed to achieve this."
