Bank of Japan board member warns Japan won’t hit inflation goal for more than two years

PUBLISHED : Thursday, 03 September, 2015, 4:01pm
UPDATED : Thursday, 03 September, 2015, 4:01pm

Japan is unlikely to see inflation hit the central bank’s 2 per cent target over the next 21/2 years, Bank of Japan board member Takahide Kiuchi said, warning that China’s economic slowdown has become a huge risk to global growth.

The former market economist said inflation had been dampened by weak consumer confidence and faltering exports as China’s growth engine sputtered.

However, he dismissed suggestions problems in China could trigger a global financial crisis.

“With China’s property market showing signs of a pick-up and authorities showing readiness to take policy measures, I expect the economy to stabilise over the course of time,” he said on Thursday after meeting business leaders in Aomori, northern Japan.

Kiuchi - among those in the nine-member board wary of the rising costs of the Bank of Japan’s radical stimulus - stuck to his lone proposal to taper the bank’s asset purchases and allow itself more time to hit its 2 per cent price target.

“Consumer inflation … is unlikely to reach 2 per cent even in fiscal 2017” Kiuchi said, referring to the financial year ending in March 2018. “I think the price target of 2 per cent is well above the level consistent with Japan’s current growth potential.”

He said it would be difficult to hit the price target unless the Bank of Japan’s efforts were accompanied by structural reforms to boost the country’s productivity.

While acknowledging that Japan’s economy was in a lull, Kiuchi said he was against expanding stimulus further given the limited effect it would have on boosting growth.

“Focusing too narrowly on pushing up prices doesn’t make sense,” he said.

The world’s third-biggest economy slipped into a contraction in the second quarter of this year and inflation has ground to a halt, keeping the Bank of Japan under pressure to expand stimulus to meet its pledge to accelerate inflation to 2 per cent by around September next year.

Bank of Japan governor Haruhiko Kuroda has voiced confidence that Japan is on track to hit the price target. But some board members, including Kiuchi, share doubts held by private analysts on whether the ambitious target can be met so soon and with monetary stimulus alone.