x Abu Dhabi, UAEWednesday 26 July 2017

Japan's PM Shinzo Abe talks tough on inflation rate

Shinzo Abe, the Japanese prime minister, said the Bank of Japan must set a 2 per cent inflation target and make it a medium-term, not long-term, goal.

Shinzo Abe, the Japanese prime minister, said the Bank of Japan (BoJ) must set a 2 per cent inflation target and make it a medium-term, not long-term, goal.

He said the move was needed to show markets it was determined to pursue bold monetary easing to end nearly two decades of deflation.

The government is negotiating with the BoJ to issue a joint statement this month to make the central bank accountable for achieving 2 per cent inflation, double its current price goal.

"The BoJ basically says it sees 1 per cent inflation as a loose goal. That doesn't show it's responsible to achieve it and doesn't show its strong determination," Mr Abe told the public broadcaster NHK yesterday.

"The statement must say clearly that 2 per cent is the target. That would lead to fundamental changes" in the way it guides policy, he said.

The BoJ set its current 1 per cent inflation target in February and eased monetary policy five times last year.

Japan is stuck in its fourth recession since 2000 and its export-reliant economy is suffering from a strong yen.

Mr Abe, who won a landslide election last month, has piled pressure on the BoJ for bolder efforts to beat deflation, threatening to revise a law guaranteeing its independence on monetary policy if his demands are not met.

Under intense pressure, the central bank will consider easing monetary policy at its rate review next Monday and Tuesday and respond to Mr Abe's calls to double its inflation target, sources have told Reuters.

In the joint statement, likely to be released on Tuesday, the BoJ wants to describe the new target as a long-term goal without setting a specific deadline, to leave itself increased flexibility in guiding future monetary policy.

Mr Abe, however, warned that making 2 per cent inflation a "long-term goal" wasn't good enough.

"That's too long. It should be a medium-term one. Otherwise markets won't react," he said.

 

* with Reuters