Japan Finance, Econ Ministers Ask BOJ to Help Complete Exit from Deflation — Update

By Megumi Fujikawa

TOKYO--The new ministers in charge of Japan's economic and fiscal policies have asked the central bank to help recently sworn-in Prime Minister Shigeru Ishiba's administration declare victory over deflation.

The Bank of Japan should weigh any additional interest-rate increases carefully in order to avoid the risk of cooling the economy too much, Ryosei Akazawa, the new economy minister, said at a news conference on Wednesday.

"I don't believe that we have completely overcome deflation at this point, and I still cannot deny the possibility of falling back" into deflation, Akazawa said. "As long as I feel this way, I would like the BOJ to share our view that it needs to be cautious about raising interest rates."

Given that Japan experienced virtually no growth in wages and prices for decades, consumers still don't believe that prices will continue rising, the minister said.

However, Akazawa isn't fully opposed to further BOJ rate increases.

"It is not strange to normalize monetary policy if conditions are met," Akazawa said. Although the BOJ ended negative interest rates in March and raised the policy rate to 0.25%, the level doesn't look normal yet, he added.

Later on Wednesday, the new finance minister, Katsunobu Kato, said he expected the BOJ to continue coordinating closely with the government and steer monetary policy toward the target of sustainable 2% inflation.

"I will work to ensure that we overcome deflation," Kato said.

Prime Minister Ishiba said late Tuesday that he expected the BOJ to maintain accommodative monetary conditions to help the nation completely exit deflation.

Though recent data has shown inflation levels above 2%, the government has yet to declare the end of deflation. It will likely need to see more evidence of sustainable demand growth to be fully confident that the economy won't backslide.

Ishiba's broad policy goals are based on the assumption that the direction of policy during the past decade was flawed, but he has yet to offer much in the way of a forward-looking vision, Moody's Analytics economist Stefan Angrick wrote in a recent note.

"When it comes to economics, the track record of pre-2010s policy is not encouraging," he said, and until more detailed plans emerge, uncertainty will cloud the outlook.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

October 02, 2024 06:32 ET (10:32 GMT)

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