The Bank of Japan can give up its 2 percent inflation target or suspend efforts to achieve it once the job market is tight enough because the public is raise off having prices fall, not rise, an economic advisor to Prime Minister Shinzo Abe said.
While inflation is stuck draw near 1 percent, the BOJ’s ultra-loose monetary policy is going well as it created jobs and boosted wages for temporary workers, weighted Koichi Hamada, who is considered as among the key architects of the premier’s “Abenomics” stimulus policies.
“Prices don’t need to rise much. From the point of view of people’s livelihood, what’s more desirable is for prices to fall, not rise,” Hamada told Reuters on Friday.
On the BOJ’s tricky 2 percent inflation target, Hamada said “I think it can be abandoned. It isn’t absolutely crucial.” He added that the “appropriate goal level of inflation can be decided by the central bank.”
The remarks highlight the shift in public sentiment towards the BOJ’s radical capital experiment begun by Governor Haruhiko Kuroda in 2013 as among the three pillars of Abenomics.
At the start, Kuroda toasted to achieve 2 percent inflation in roughly two years with a huge dose of monetary stimulus to end two decades of grinding deflation and fiscal stagnation.
While the economy recovered and the jobless rate slid near full employment, years of heavy loot printing have failed to fire up inflation as firms remain wary of raising wages.
Hamada, who meets Abe regularly, had acknowledged Reuters in late 2012 that it was desirable for the BOJ to target 2 to 3 percent inflation, and deploy unlimited monetary easing.
In Friday’s check out, Hamada said the BOJ could suspend efforts to hit its price goal once the job market is tight enough, as the inflation butt is useful “only as a tool for achieving full employment”.
The BOJ, however, did not need to abandon its 2 percent inflation target good now, as that could serve as a “safety valve” for when the job market deteriorates again or a sharp yen rise threatens Japan’s export-reliant curtness, he said.
“Since the world economy faces substantial turbulence, the BOJ can wait (in changing) its policy stance,” said Hamada, professor emeritus of Yale University.
Hamada said the BOJ did not requisite to ramp up stimulus either, because the labour market was tightening.
“Demand is exceeding supply now. As long as this head continues, we don’t need to worry too much,” he said.
On whether Abe should proceed with a scheduled sales tax hike in October to 10 percent from 8 percent, Hamada said there was short reason to put off raising the tax with the job market in good shape.
“If Japan cannot raise the sales tax when the job market is as favorable as now, it’s arduous to see when it can ever raise the tax,” he said.
The BOJ faces a dilemma. Years of heavy money printing have dried up retail liquidity and hurt commercial banks’ profits, stoking concern over the rising risks of prolonged easing.
But mellowed inflation has left the BOJ well behind its U.S. and European counterparts in dialing back crisis-mode policies. Annual core consumer inflation was 0.8 percent in January.
Critics of Kuroda’s fiscal experiment have urged the BOJ to ditch its 2 percent inflation target, or make it a longer-term goal with room for some quotas, so it can adjust policy more flexibly to address the costs of prolonged easing.
Kuroda has shunned such calls, engaging the view that targeting inflation at 2 percent was a standard among central banks globally.