BOJ vice governor positive about current rise in consumer prices

Bank of Japan Deputy Governor Kikuo Iwata said Monday the ongoing rise in Japanese consumer prices under ultraloose monetary policy is working positively for the economy, citing a falling unemployment rate and growth in real gross domestic product.

Countering skepticism that the BOJ cannot easily achieve its 2 percent inflation target unless the yen weakens further to boost import prices, Iwata argued that the rise in prices stems from increasing demand and is not dependant on the yen's depreciation.

If prices had climbed solely due to rising import prices, real GDP would have declined and the unemployment rate would have gone up, contrary to actual developments, he said.

"At this stage, my assessment is that the price rise is coming under a virtuous cycle and is not an adverse one that merely stems from cost-push," Iwata said in a speech in Tokyo. "As employment conditions are tightening, wages will rise and improve the income environment."

"If we continue with the current monetary easing, there will be favorable effects on capital investment and exports in the medium- to long-term," Iwata said, showing confidence about the impact of the central bank's large-scale easing steps introduced in April last year.

Iwata said a recovery in Japanese exports has been lagging due to sluggishness in overseas economies, especially in Southeast Asia, and the shift of production outside Japan due to the yen's earlier appreciation.

But he said exports are "likely to pick up compared with fiscal 2013," as overseas economies are expected to improve.

Iwata also called on the government to promote structural reforms to enhance the growth potential of the Japanese economy, saying monetary easing can only raise such potential to a certain extent.

Structural reforms such as the easing of regulations will channel resources to growing industries, Iwata said. "That is a policy tool which the government possesses, not the BOJ," he said.