Bank of Japan board member bullish on economic outlook

Central bank official says rise in consumer spending will drive up price pressures

PUBLISHED : Friday, 11 April, 2014, 12:59am
UPDATED : Friday, 11 April, 2014, 4:32am

Bank of Japan board member Ryuzo Miyao said gains in consumer spending were being driven by improving underlying demand which in turn should increase upward pressure on prices.

"High stock prices are not the only reason that consumer spending is recovering," Miyao told business leaders. "A mechanism is in place that is stimulating underlying demand. This is boosting corporate earnings and leading to improvements in labour and wages."

Miyao said Japan's economy could continue to grow above its potential rate after the temporary shock from a sales tax rise on April 1, echoing equally bullish comments that BOJ governor Haruhiko Kuroda made earlier this week, which could cause some economists to scale down their expectations that the central bank will ease policy further.

The economy and consumer prices are moving broadly in line with the BOJ's forecasts, Miyao said, which would support Kuroda's argument that additional easing was not needed now.

Miyao expressed concerns about downside risks to the economy last year, but in the speech he said risks were roughly balanced, suggesting he has turned more optimistic.

The BOJ voted unanimously on Tuesday to maintain its pledge of increasing base money, its key policy gauge, at an annual pace of 60 trillion yen (HK$4.57 trillion) to 70 trillion yen.

Kuroda said there was no need for additional stimulus to escape years of debilitating deflation, which pushed the yen higher against the dollar. The BOJ has stood pat since launching an intense burst of stimulus in April last year, when it pledged to accelerate inflation to 2 per cent in two years through aggressive asset purchases in a country mired in deflation for 15 years.

The BOJ's target does have a two-year timeframe, but the central bank has also committed to keep policy easy as long as needed to reach the target in a stable manner. Miyao said this made the BOJ's monetary easing open-ended and this could help keep inflation expectations on track.

A run of recent soft data, such as last week's tankan survey that showed companies see a worse impact on consumers from the sales tax rise than from the previous increase in 1997, has cast doubt on how long Prime Minister Shinzo Abe's reflationary policies can sustain the recovery.