FILE PHOTO: Newly-appointed Bank of Japan (BOJ) board member Yukitoshi Funo speaks during his inauguration news conference at the BOJ headquarters in Tokyo, July 1, 2015. REUTERS/Toru Hanai
August 2, 2017
By Leika Kihara
SAPPORO, Japan (Reuters) – Bank of Japan board member Yukitoshi Funo said the central bank no longer has a binding timeframe for meeting its ambitious inflation target, conceding the bank has essentially abandoned an earlier pledge to meet the goal in roughly two years.
With inflation still flatlining despite years of massive stimulus measures, the BOJ has already postponed the target timeframe six times since setting it in 2013, most recently at a board meeting last month, pushing it back to 2019/20.
BOJ officials, including Governor Haruhiko Kuroda, have toned down their commitment to meet the goal within a set timeframe since revamping the bank’s policy framework last year to one more suited for a long-term battle against deflation.
But Funo’s comment on Wednesday was the first time a board member has publicly acknowledged that the BOJ has relinquished a binding timeframe for its target.
“I don’t expect prices to surge suddenly any time soon,” Funo told reporters after meeting business leaders in Sapporo, northern Japan.
“My understanding is that under the current policy framework, we don’t have a two-year deadline for meeting the target,” he said.
“We still pledge to hit the price target at the earliest date possible. But I don’t think we need a set time frame for achieving it.”
Funo has consistently voted for Kuroda’s proposals.
The BOJ launched its radical stimulus program in 2013 to meet its pledge to achieve 2 percent inflation in roughly two years. But it was forced to revamp its policy framework last year after failing to meet the goal for nearly four years.
It now expects inflation to reach 2 percent by around March 2020, well after Kuroda’s term expires in April next year, but some analysts say that still looks too ambitious as price pressures globally remain unexpectedly sluggish.
Funo reiterated the central bank’s resolve to maintain its “powerful” monetary easing stance, as inflation remains distant from its goal despite signs of strength in the economy.
But the former Toyota Motor Corp executive said private-sector and government efforts to boost Japan’s growth potential were also important to foster sustainable price rises.
“To achieve 2 percent inflation stably, it’s very important to have a combination of monetary, fiscal steps and structural reforms,” he said. “What’s particularly important are structural reforms.”
Kuroda has repeatedly said the BOJ will continue efforts to achieve the price goal at the earliest date possible. But he has recently stopped saying it will meet the goal in two years.
ROOM TO BOOST PRODUCTIVITY
Funo said a strong economy and a tightening job market will likely gradually push up wages and inflation. But he said there was a risk companies may remain reluctant to raise wages.
Japan’s rapidly aging population means the demand outlook for goods and services will slacken, so companies must cut excess output capacity and put their human resources to better use, he said.
“Japan’s economy still has room to raise productivity when seen from a global perspective,” Funo said.
To ease the pain from such streamlining efforts, Japan needs a growth strategy to promote innovation and create new business opportunities, he said.
For instance, the government can help companies develop attractive new goods and services, he added.
Japan must also take steps to promote job mobility, while companies should cut excess services or overlapping operations to cope with labor shortages, he said.
“Now is a good chance to proceed with structural reforms and growth strategies, because monetary conditions are very loose and the job market is tight,” Funo said. “Japan should not miss this opportunity.”
Japan’s economy expanded at an annualized 1.0 percent in the first three months of this year, posting a fifth straight quarter of growth on firm exports and a pick-up in consumption.
Household spending hit a two-year high in June as job availability reached a 43-year peak. But core consumer prices rose just 0.4 percent in June from a year earlier, underscoring the challenge policymakers face in beating deflation.
(Editing by Chris Gallagher and Kim Coghill)