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Japanese Minister Calls for Clarity on BOJ Inflation Goal

The Bank of Japan should communicate its inflation goal more clearly, Japanese Economy Minister Motohisa Furukawa said as the central bank comes under pressure to halt deflation.

“It’s desirable for the BOJ to consider whether there’s a better way for the public to understand its inflation policy,” Furukawa said on NHK’s Sunday Debate program today.

Opposition party members last month called for Japan’s central bank to emulate the Federal Reserve’s decision to set a firm inflation target of 2 percent. Furukawa’s remarks indicate the government wants the BOJ to take a more aggressive stance, while trying not to interfere with its independence, said Masamichi Adachi, senior economist at JPMorgan and Chase & Co.

“Furukawa’s comment is signaling some frustration within the government,” he said by phone from Tokyo. “But it doesn’t mean that the government wants to risk the central bank’s policy by pushing too much.”

The BOJ did not answer a call seeking a comment today.

The central bank avoids setting an explicit inflation target and follows a policy whereby it has a so-called understanding of price stability that it aims for. The current view is for price stability to be a situation where the cost of goods rises between more than zero and as much as 2 percent, centered at about 1 percent.

BOJ policy makers have pledged to keep interest rates near zero unless they judge that “price stability is in sight.”

Falling Prices

Consumer prices excluding fresh food fell 0.1 percent in December from a year earlier, the third straight year of declines. Prices haven’t risen by at least 1 percent for any year since 1997.

The central bank will review whether to begin referring to the so-called understanding as a target during a meeting that begins tomorrow, the Wall Street Journal reported yesterday, citing unidentified people familiar with the central bank’s thinking. It may announce a change in an economic report to be released in April, the newspaper said.

Setting a target may be difficult for the BOJ, because the central bank views itself as powerless to address many causes of deflation, Adachi said.

“The basic understanding of the BOJ is that deflation is not only due to the central bank, but more structural issues,” he said. “That’s why the BOJ is very reluctant to commit to an inflation target.”

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