Business / Economy

BOJ deputy governor seeks stronger policy to drive inflation as price gains remain tepid


One of the Bank of Japan’s newly appointed deputy governors said consumer prices are not rising quickly enough and the central bank should strengthen its policy stance if possible, underscoring a still-tepid inflation outlook in the nation despite years of stimulus.

Masazumi Wakatabe, speaking in the Diet on Friday, praised the accomplishments of the BOJ’s policy framework so far but said there may be room for improvement.

Wakatabe, who was commenting on data released earlier in the day, stopped short of calling for additional easing. However, he has repeatedly said the BOJ should not hesitate to ease policy if there is a delay in meeting its 2 percent inflation target.

The core-core consumer price index (CPI), which excludes fresh food and energy, rose an annual 0.5 percent in February. That’s below the rate in other countries and shows that inflation expectations remain weak, Wakatabe said.

“When compared to the United States or Europe, gains in Japan’s core-core CPI are insufficient,” he said.

“What we can learn from this is that people still don’t believe inflation will reach 2 percent. Inflation expectations are not anchored.”

When asked by an opposition lawmaker whether the BOJ should lower its inflation target to 1.5 percent, Wakatabe said doing so could increase deflationary pressure via moves in the currency market.

The central bank is at a crossroads because it has been pursuing radical quantitative easing for almost five years with only mixed results.

Wakatabe, a former academic and vocal advocate of aggressive stimulus, assumed his new role at the BOJ only on Tuesday. So far, his tone on monetary policy does not appear to have changed.

“My pledge is to maintain the regime and stance we have in place for monetary policy to meet 2 percent inflation and to strengthen it if possible,” Wakatabe told parliament.

The nationwide core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 1 percent in February from a year earlier, matching the median estimate.

Higher prices for gasoline, kerosene, and utilities were the biggest contributors to the rise in core CPI in February, the data showed.

Excluding these items, gains in CPI were driven by a modest rise in hotel and lodging costs.

“When you exclude energy prices, gains in CPI don’t look sustainable,” said Yusuke Ichikawa, senior economist at Mizuho Research Institute.

“The reality is there is not much room to ease policy again. The BOJ is stuck for the time being.”

Big domestic firms agreed last week at annual negotiations with labor unions to raise wages for a fifth year. This should help support consumer spending and inflation, but many companies likely fell short of Prime Minister Shinzo Abe’s goal of increasing wages by 3 percent or more.

Japan’s unemployment rate is also at a 25-year low of 2.4 percent, which in theory should encourage inflation by putting upward pressure on wages as companies compete for workers.

In practice, however, consumer prices have risen more slowly than the BOJ had hoped.

BOJ Gov. Haruhiko Kuroda was approved last year for a second five-year term. Two new deputy governors also join the central bank’s leadership team, but there is uncertainty about how the BOJ will respond if price rises do not accelerate.