The Bank of Japan will pursue powerful monetary easing until a 1 percent rise in the consumer price index comes into sight, BOJ Gov. Masaaki Shirakawa said Monday.
On the domestic economy, the central bank chief warned there is a preponderance of downside risks, citing such factors as uncertain developments in the European debt crisis and the possibility of a prolonged slowdown in the Chinese economy.
Due to “considerable uncertainties,” especially in future developments in overseas economies, “relatively close attention should be paid to the downside risks,” Shirakawa said in a speech in Tokyo.
Referring to rocky ties with China, Shirakawa said the increasing strains require “close attention” as the soured relations have begun to affect Japan’s economy in such areas as trade and tourism.
While pledging that the BOJ will make every effort on the monetary side to prop up the economy, Shirakawa voiced expectations for government action, saying the bank “strongly expects the government to vigorously promote measures for strengthening Japan’s growth potential.”
“The government should lay out foundations such as expanding, through decisive deregulation, business areas for firms,” he added.
The BOJ decided Oct. 30 to further ease its monetary policy for the second straight month by expanding its asset purchase program by ¥11 trillion, bringing the total to ¥91 trillion, while releasing a joint statement with the government to demonstrate combined resolve in the battle against deflation.
Countering the view that boosting expectations for inflation should become a priority for improving the economy and overcoming deflation, Shirakawa said it is “not realistic” to believe that the general public’s expectations will suddenly rise when neither prices nor salaries have increased in years.
He stressed that it is necessary to generate “material changes” in the economy, such as enhancing growth and achieving higher wages to fight deflation.
Regarding the purchase of foreign bonds by the central bank, a move aimed at stemming the yen’s strength, Shirakawa showed a negative stance, saying that such buying is the government’s responsibility, as stipulated by BOJ law.
He added that the BOJ constantly monitors developments in the foreign exchange market “with great interest,” as well as their effects on the economy and prices.
Corporate prices fall
Corporate goods prices fell 1.0 percent from a year before in October, down for the seventh consecutive month, the Bank of Japan said Monday.
The decline reflected a drop in prices of steel products and other goods on the back of an economic slowdown in China.
The price index for goods at the production and wholesale stages stood at 100.1 against 100 for the base year of 2010, the central bank said in a preliminary report.
A downturn in demand abroad pushed down prices of steel products by 9.9 percent and those of scrap and waste, including scrap iron, by 21.4 percent.
Information and communications equipment prices dropped 10.1 percent amid intensifying sales competition over mobile handsets.
By contrast, electric power and other utility prices rose 6.0 percent.
Month on month, the index slipped 0.3 percent, the first decline in three months, partly due to a drop in iron ore prices.