Japan’s economy minister vows to coordinate policy with BOJ

Japan’s government will closely coordinate policy with the central bank as the economy is at a critical stage in shifting to growth driven by higher wages and investment, economy minister Ryosei Akazawa said on Friday.
Japan has long been stuck in a “deflationary, vicious cycle” where prices and wages have stagnated, causing households to curb spending and companies to focus on cost cutting, he said.
“It’s very important to dispel this deflationary mindset, and achieve growth driven by higher wages and investment,” Akazawa told a regular news conference, stressing the need to prod firms to raise wages at a pace exceeding inflation.
“There’s no change in the government’s stance to closely coordinate with the Bank of Japan, and nimbly guide policy in accordance with economic and price developments,” he said.
The remarks come ahead of the BOJ’s policy-setting meeting on Jan. 23-24, when some analysts expect the central bank to raise interest rates from the current 0.25%.
Akazawa is in charge of deciding whether the government can declare that Japan is no longer in deflation. When doing so, the government looks not just at underlying price moves but also at whether the economy has completely eradicated the risk of slipping back into deflation.
The decision could affect the timing of future BOJ rate hikes, by underscoring the government’s confidence that the economy no longer needs crisis-mode stimulus measures, some analysts said.
Akazawa said the decision on whether to declare a complete exit from deflation must be made “cautiously” by scrutinising the factors behind Japan’s underlying inflation.
“Once we are able to fully declare an end to deflation, we can relieve ourselves from deploying tools we had in store to fight deflation,” he said.
Japan’s economy expanded an annualised 1.2% in the three months to September, slowing from the previous quarter’s 2.2% increase, with consumption up a feeble 0.7% as rising living costs hurt households.
Rising food and fuel costs, coupled with higher labour costs driven by a tight job market, have kept inflation above the BOJ’s 2% target for nearly three years. Core inflation hit 2.7% in November, keeping the BOJ under pressure to hike rates.
Despite rising inflation, the government has held off on declaring an end to “deflation”, holding the view that Japan’s economy still faces risks of another downturn.
Calling a formal end to deflation would draw a line under two decades of falling prices and economic stagnation that followed the collapse of Japan’s asset-inflated bubble economy that stretched from 1986 to 1991.
Data released on Friday showed household spending fell at a slower pace than expected in November, which followed a survey showing base salary rising that month at the fastest annual pace in 1992.
The BOJ said on Thursday that wage hikes were broadening due to structural labour shortages, suggesting that conditions for a near-term rate hike were continuing to fall into place.
Source: Reuters