Japan Stays Cautious on Declaring End to Deflation Despite BOJ Saying 2% Target Reached

Japan’s government is keeping a cautious stance on formally declaring an end to deflation, even after the Bank of Japan said on Friday that underlying inflation has reached its 2% target, Jiji Press reported.

Chief Cabinet Secretary Minoru Kihara told a press conference on Friday that the government’s view had not shifted. “Our position that the matter needs to be judged carefully remains unchanged,” he said. Kihara added that the economy must not only have moved out of a period of sustained price falls, but also be in a state where officials can determine there is no prospect of slipping back into one, according to Jiji.

Government holds back on a declaration

The government is expected to keep weighing the question carefully, Jiji reported, as it concentrates on measures to address rising prices linked to turmoil in the Middle East and other factors. Officials close to Prime Minister Sanae Takaichi have questioned the value of such a declaration, the news agency said. Takaichi said in July that the government was not in a position to say deflation had ended.

The opposition is pushing for a quicker call. Democratic Party for the People leader Yuichiro Tamaki said the government should promptly declare that Japan has emerged from deflation, according to Jiji.

BOJ says target reached

The BOJ kept its policy rate at 1.25% on Friday in an 8-1 vote, with board member Hajime Takata dissenting in favour of a rise to 1.5%, Central Banking and South Korea’s Financial News reported. Citing the Nikkei, Financial News said the central bank judged underlying inflation to be broadly consistent with its 2% goal, about 13 years after the target was introduced in January 2013.

The bank also decided to speed up sales of its exchange-traded fund holdings, cutting the time needed to dispose of them all from about 112 years to 43 years, both outlets reported. Financial News said annual sales will rise from 330 billion yen to 860 billion yen at book value from January 2027.

Finance minister on the BOJ

Finance Minister Satsuki Katayama said she expects the BOJ to conduct appropriate monetary policy so that the 2% price target is achieved in a sustained and stable manner, Financial News and Dow Jones reported. She declined to comment on the BOJ’s assessment that it had broadly met its price goal, according to Dow Jones.

Katayama also said the government will consider the specific amount of the surplus arising from the BOJ’s ETF sales, and how to handle it, during budget formulation, Newsquawk reported.

What’s next on Deflation

The BOJ reaffirmed plans for further rate increases, saying financial conditions remain accommodative, Financial News reported. Governor Kazuo Ueda said the effort to keep inflation on track must be waged constantly, Dow Jones reported. On the government side, Jiji said officials are expected to keep weighing any deflation declaration cautiously while focusing on measures against rising prices.

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