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Bank of Japan Policy Board member Takehiro Sato said Monday the possibility of achieving the central bank's inflation target of exactly 2 percent in roughly two years is "not necessarily high," with stable progress taking priority under a flexible inflation-targeting policy.
"I understand that the bank's monetary policy framework...is a flexible one, in the sense that it focuses mainly on maintaining the 2 percent target in a stable manner rather than merely on achieving the target exactly," he said in his speech in Fukushima Prefecture.
Sato said countries adopting inflation-targeting policy "do not change their monetary policy stances mechanically" in line with the achievement or undershooting of their targets, and such understanding is "widely shared by central banks that have adopted such a policy framework."
"It is almost impossible to stably maintain the inflation rate specifically at 2 percent, given the time lag required for the permeation of monetary policy effects and uncertainty of such permeation," Sato said.
But he added the target is "reasonable and achievable" if it is seen as a flexible framework which allows a certain range for upward and downward deviation of the actual inflation rate from the target.
In April, the BOJ introduced large-scale monetary easing measures to attain 2 percent in two years excluding the effects of planned consumption tax hikes to beat the deflation that has lasted for nearly two decades.
Regarding the bank's stance of avoiding the incremental adoption of separate steps, Sato said it was "based on the lessons learned from the fact" that the economy could not overcome deflation even though the BOJ continued to change its policy under former Governor Masaaki Shirakawa.
By avoiding an incremental approach, the bank aims to drastically change expectations of firms, households and financial markets by implementing all possible measures called for at the time, he said.
Sato said the BOJ does not exclude adopting more measures and "will not hesitate to fine-tune its policies flexibly when unexpected tail risks materialize."
On prospects of the domestic economy, Sato said he sees risks "somewhat tilted downside" as a high degree of uncertainty remains concerning the global economy, citing such factors as Chinese and other emerging economies not showing clear signs of accelerated growth.
But he said the external environment as a whole is "expected to exert positive effects on Japan's economy" backed by a robust recovery in the U.S. economy, unless a tail risk affecting the global economy emerges.
"I believe that the present offers a window of opportunity for Japan's economy to overcome deflation," he said.
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