Japanese Prime Minister Fumio Kishida speaks to media members at his official residence in Tokyo on December 10, 2022, after an extraordinary Diet session. PHOTO AP TOKYO Japanese Prime Minister Fumio Kishida said on Friday that a return to deflation in the world's third-largest economy can't be ruled out because domestic demand remains weak.
The central bank is under pressure to phase out its monetary policy after the data showed Tokyo's consumer inflation, a leading indicator of Japanese price trends, hit a 42 year high in January.
Kishida told a session of the upper house of parliament that inflation was driven by high global raw material prices and a weak yen, not by strong domestic demand.
Asked if the Japanese economy has fully exited from years of deflation, the state of non-deflation is going on at the moment, but it has not reached a stage where we can judge whether the return to deflation is imminent, Japanese Prime Minister Fumio Kishida said. Asked by an opposition lawmaker if the Japanese economy has fully exited from years of deflation, Kishida said: "The state of non-deflation is going on at the moment, but it has not reached a stage where we can judge that the return to deflation is unlikely." The Bank of Japan surprised financial markets last month with its decision to allow 10 year bond yields to move in a slightly wider range at just above or below zero, prompting speculation that it was preparing the ground for a gradual exit from its super-loose policy.
Kishida described the move as an operational tweak to smooth the impact of monetary easing, which is distorting the country's bond markets. The BOJ did not make any changes at its mid-January meeting.
Policymakers are hoping that wage increases this spring will cushion higher living costs and boost consumer spending.
The BOJ and the government have agreed to cooperate closely toward economic growth in tandem with structural wage hikes and the sustainable, stable achievement of the inflation target, Kishida said.
He refrained from commenting on whether there would be a revision of a joint government and BOJ statement on economic policy that mandates policymakers to fight deflation since 2013, saying that a new BOJ governor has not yet been chosen.
On Sunday, Kishida said he would nominate the next BOJ leader next month before the second five-year term of incumbent Haruhiko Kuroda ends on April 8.