Bid to end Japan's deflationary mindset only halfway to goal: The Yomiuri Shimbun

Commercial buildings stand behind the Rainbow Bridge in Tokyo, Japan.
Commercial buildings stand behind the Rainbow Bridge in Tokyo, Japan.PHOTO: BLOOMBERG

In its editorial on Nov 2, 2015, The Yomiuri Shimbun urges the Bank of Japan to remain persistent in trying to bail the nation out of deflation

To definitively get the nation out of deflation, it is vital for the government, the Bank of Japan and businesses to make unified efforts.

The central bank, at its Policy Board meeting on Friday, further pushed back the timing to achieve its 2 percent inflation target from "around the first half of fiscal 2016" to "around the second half of fiscal 2016."

On the other hand, it put off implementing additional monetary easing and decided to keep unchanged its current policy of increasing the nation's monetary base at an annual pace of 80 trillion yen (S$929.6 billion) , through its purchase of instruments such as government bonds.

The nation's core consumer price index, which excludes prices for fresh food, at one time rose to the 1 per cent range from a year earlier, but has fallen from the year-before level due to such factors as declining crude oil prices.

Some market players had speculated that the central bank, in a bid to demonstrate its strong resolve to achieve its inflation target, might implement additional monetary easing.

Excluding the impact of falling crude oil prices, however, the basic trend of consumer prices remains upward, as seen by a string of price hikes for food and clothing of late. Corporate earnings are also strong, with the overall economy remaining steady.

Bank of Japan Governor Haruhiko Kuroda said that the central bank decided against additional monetary easing as the slumping consumer prices are "due to falling energy prices while the basic price trend has been improving steadily."

We can understand Kuroda's stance.

"A new dimension in monetary easing," as has been advocated by the governor, is aimed at dispelling the deflationary mind-set that has been held for so long by businesses and the general public, and at invigorating the economy.

Bank of Japan shouldn't be hasty

The important thing is for the central bank to aim to bail the nation out of deflation persistently, without sticking, more than it needs to, to achieving the "2 percent" target at the earliest possible time.

If the central bank attempts to achieve the target too hastily and implements additional monetary easing, the yen will fall further and import prices will rise, which may dampen the overall economy.

The latest decision by the central bank to keep its monetary policy unchanged is, therefore, deemed appropriate.

Needless to say, however, the central bank's effort alone cannot achieve the target of getting the nation out of deflation.

The government needs to support corporations to develop new businesses by pushing through such measures as the easing of regulations, which will help the economy strengthen its growth potential.

Businesses, for their part, need to continue implementing significant wage hikes, while proactively investing in plant and equipment to enhance productivity.

Persistent efforts by both the public and private sectors are necessary to realize a virtuous economic cycle.

The European Central Bank has hinted at the possibility of taking additional monetary easing to prop up European economies.

Meanwhile, the US Federal Reserve Board is considering the best timing to raise rates from near zero, by assessing changes in employment and consumer prices.

Monetary policies in the United States and European countries will have an impact on the world economy, including newly emerging economies.

The Bank of Japan needs to steer its monetary policy prudently, while keeping close watch on these developments overseas.

* The Yomiuri Shimbun is a member of The Straits Times media partner Asia News Network, a grouping of 22 newspapers seekings to promote coverage of Asian affairs.