Bank of Japan board member Koji Ishida on Wednesday repeated the official projection that Japan can achieve stable 2% inflation in the latter half of the BOJ’s economic forecast period from fiscal 2013 until the end of fiscal 2015 (March 31, 2016).
In a speech to business leaders in Saitama City, north of Tokyo, Ishida, a former commercial banker, also repeated the official line that the BOJ will examine both upside and downside risks to growth and inflation and make any necessary change to its policy stance.
The BOJ has pledged to boost the annual inflation rate to stable 2% in “about two years” from April 2013, when it launched aggressive easing, but some board members are skeptical about the timeframe.
Other remarks from Ishida’s speech:
–Japan’s economic recovery mechanism led by a rise in production, income and consumption should remain intact although the economy will temporarily contract in the April-June quarter after the sales tax hike on April 1.
–The BOJ must “carefully assess the trend of the economy” as indicators of demand are expected to fluctuate sharply before and after the tax increase.
–Stronger-than-expected demand for durable goods before the tax hike would cause a sharper-than-projected slump in demand afterward.
–Japan’s long-term interest rates have been stable at around 0.6%. Real long-term interest rates may be in negative territory given that the CPI (excluding perishables) has been rising just above 1% from year-earlier levels.
–The BOJ aggressive easy policy since last April has had desired effects of stimulating private-sector demand, which in turn is forming the foundation for a sustainable economic recovery.
–Japan’s exports lack momentum as overseas demand remains sluggish and major manufacturers have shifted factories overseas. The BOJ should keep a close eye on whether exports will become a driver of growth in the next fiscal year staring on April 1.
–The BOJ needs to carefully watch the impact of the slow pace of recovery in some emerging market economies on Japan’s exports.
–To achieve sustained growth and stable 2% inflation, the economy needs a mechanism under which improvement of job creation and income growth will continue supporting consumer spending.
–The BOJ should pay attention to whether base wages will be raised in fiscal 2014 and how much household income will improve.