The Bank of Japan’s asset-purchase program will let the central bank meet its medium-term inflation target, Federal Reserve Bank of St. Louis President James Bullard said.
The program “will take the Japanese out of the deflationary situation that they’ve been in for some time,” Bullard said at a briefing in Tokyo today. “It will ultimately be successful.”
The central bank set its 1 percent inflation goal in February and has added stimulus twice this year in an attempt to spur growth and boost prices to pull the world’s third-largest economy out from more than a decade of deflation. The BOJ forecasts price growth of 0.7 percent in the year starting April 2013.
“Quantitative easing in the U.S. was a successful policy,” Bullard said. “It did influence inflation and inflationary expectations” so the same can occur in Japan, he said.
The yen reached its strongest level in more than three months against the dollar, gaining against most of its major peers today as the banking crisis in Spain added to signs Europe’s debt turmoil is spreading, boosting investor demand for safer assets. It traded at 78.82 as of 4:35 p.m. in Tokyo.
“A lot of what is going on in global markets right now is flight-to-safety effects and that’s affecting exchange rates as well,” Bullard said. He declined to comment specifically on the yen.
Japan’s Finance Minister Jun Azumi said today that currency and stock market movements “in no way reflect Japan’s economic fundamentals. ‘‘We are watching out for speculative and excessive moves’’ in the yen, Azumi said.
The Fed lowered its target interest rate close to zero in December 2008 and has engaged in two rounds of asset purchases totaling $2.3 trillion to boost the economy. Bullard doesn’t vote on monetary policy this year.
He was the first Fed official in 2010 to call for a second round of asset purchases and published a paper in July 2010 saying the Fed should buy Treasuries as a way to prevent deflation.