Abe Adviser Says Can Miss 2% Inflation If Economy Heals
Japanese Prime Minister Shinzo Abe’s economic adviser said failing to reach the central bank’s 2 percent inflation target will be acceptable so long as the economy heals.
A “fully-fledged recovery” is the key “even if price growth reaches only 1.5 percent,” Koichi Hamada, 77, a retired Yale University professor, said in a speech in Tokyo yesterday. “It can be said the inflation target is a secondary goal.”
Japan returned to growth in the fourth quarter, bolstering Abe’s campaign to end 15 years of deflation and revive the world’s third-biggest economy, a report showed yesterday. Kikuo Iwata, a nominee to be a central bank deputy governor, suggested this week that Bank of Japan (8301) leaders could resign if they failed to achieve the 2 percent target within two years.
“Hamada probably wanted to make it clear that the real goal is to end deflation, not 2 percent price growth,” said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co.
Investors’ expectations for aggressive easing are driving down the yen and boosting the nation’s stocks. The Nikkei 225 Stock Average gained 2.6 percent to close at 12,283.62 in Tokyo yesterday, the highest since before Lehman Brothers filed for bankruptcy on Sept. 15, 2008. The dollar rose to its strongest level since August 2009 against the yen.
“We don’t aim at weakening the yen, but we thought excessive appreciation in the yen needs to be corrected,” Abe said on BS Asahi television today. “With bold monetary easing, one of our ‘three arrows’ policies to end deflation, its effects come out in currencies and stocks at first. That’s appearing just right now.”
Abe said so-called Abenomics is aimed at overcoming deflation and boosting growth. He said he doesn’t comment on foreign-exchange rate levels.
Abe consulted with Hamada before last year’s election campaign, won by Abe after he pledged aggressive monetary easing to spur growth. Hamada also advised him on choosing a nominee for central bank governor, with Asian Development Bank President Haruhiko Kuroda picked as the candidate to succeed Masaaki Shirakawa.
Gross domestic product rose an annualized 0.2 percent in the three months through December, the Cabinet Office said in Tokyo yesterday, compared with a preliminary calculation of a 0.4 percent contraction.
Shirakawa, who is stepping down on March 19 along with two of his deputies, said this week that achieving the price target will take “considerable efforts” as the bank expects 0.9 percent inflation in the year starting in April 2014.
Consumer prices excluding fresh food fell 0.2 percent in January. The price gauge hasn’t advanced 2 percent -- the central bank’s target since January -- for any year since 1997, when a national sales tax was increased.
The yen traded at 95.51 per dollar as of 6:36 p.m. in Tokyo yesterday.
Private consumption and public investment fueled the nation’s growth in the fourth quarter, while a less-than- initially estimated fall in capital spending suggests that a weakening yen may be easing corporate pessimism. Exporters from Toyota Motor Corp. to Nintendo Co. have raised their profit forecasts.
“Japan’s recession is over and the economy is heading to a recovery,” said Koya Miyamae, an economist at SMBC Nikko Securities Inc. in Tokyo who accurately predicted yesterday’s GDP result. “I expect the pace of growth to pick up in coming quarters backed by government spending, improving corporate profits and the global recovery.”
Net exports subtracted 0.2 percentage point from GDP growth, unchanged from the initial estimate. Japan recorded a record trade deficit in 2012 as exports fell and energy imports costs remained high with almost all nuclear reactors closed after the 2011 earthquake and tsunami disaster.
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