Japan Not Yet Officially Out of Deflation, Economy Minister Kiuchi Says Ahead of BOJ Meeting

Japan has not yet met the conditions needed to formally declare that it has overcome deflation, Economy Minister Minoru Kiuchi said on Friday, according to a Reuters report published by Investing.com, a stance that Reuters reported exposes a divide with the Bank of Japan (BOJ) as the central bank sees the economy close to durably achieving its 2% inflation goal.

Speaking at a news conference, Kiuchi was asked how the government would reconcile its view on deflation with the BOJ’s assessment that underlying inflation may have reached its target. He said the government must be careful in making the call and should look comprehensively at consumer price moves, the GDP deflator and the factors driving underlying inflation.

“It’s important that Japan does not revert to deflation,” Kiuchi said, adding that it was premature to declare an end to it.

Divide with the central bank

Reuters described Kiuchi as a close ally of Prime Minister Sanae Takaichi and an advocate of loose monetary policy who has repeatedly signalled reservations about the BOJ’s rate-hike plans. His comments, it said, underscore a disconnect between the government and the central bank on price trends.

On monetary policy, Kiuchi said he hoped the BOJ would conduct policy appropriately to achieve its 2% target stably and sustainably, taking into account the principles of the joint statement between the government and the central bank. That statement, signed in 2013 and reaffirmed in 2025, pledges coordinated efforts to end deflation, according to the report.

Some analysts say the government’s reluctance to declare deflation over reflects concern that doing so would narrow its room to pursue accommodative fiscal and monetary policy, Reuters said. A formal declaration could also prompt calls to revise the 2013 joint statement.

Inflation near target

Data released on Friday showed Japan’s core consumer price index, which excludes volatile fresh food but includes fuel costs, rose 2.1% in September from a year earlier. Core consumer inflation has hovered near the BOJ’s 2% target for four years, The Standard reported, carrying the same Reuters story.

According to the reports, fuel subsidies have helped temper price pressures, while the energy shock linked to the Iran war and higher import costs from a weak yen have pushed prices up. The government has stopped short of declaring victory over deflation, saying it needs clearer evidence that the economy will not slip back into a period of persistent price declines.

What’s next

The BOJ holds its policy meeting next week, and Kiuchi said earlier in the week that he hoped to attend. Reuters reported that the central bank is expected to keep interest rates steady, revise up its inflation forecast and signal its resolve to keep raising borrowing costs, with The Standard noting it is seen signalling that underlying inflation has hit its 2% target.

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