Akira Amari, a veteran ruling party lawmaker, told Reuters on Wednesday that Japan has yet to see economic conditions fall into place for the central bank to raise interest rates.
Amari, a former industry minister who played a major role in designing former Prime Minister Shinzo Abe's Abenomics policy, said Japan's economy isn't in a condition where the Bank of Japan BOJ can exit ultra-loose monetary policy.
When stripping away the effects of one-off factors like energy and fresh food, we're not seeing inflation stably move up around 2 per cent, said Amari, adding that raising interest rates would hurt the country's still fragile economy.
Amari said there was no need to amend the policy statement between the government and the BOJ, under which the central bank pledges to achieve 2 per cent inflation at the earliest possible date.
There are some people who say it's sufficient to target 1 per cent inflation because 2 per cent inflation can't be achieved. Inflation of 2 per cent is a global standard. In the global world of central banking, inflation target means 2 per cent, Amari said.
Amari said that the prime minister Fumio Kishida's administration was looking for a new BOJ governor to replace incumbent Haruhiko Kuroda, whose second, five-year term ends in April.
Many market players think the BOJ will raise interest rates under Kuroda's successor with inflation now exceeding 2 per cent and critics saying the BOJ's massive bond buying is distorting market function.
Sources told Reuters that the government would consider revising the joint statement with the BOJ after a new central bank governor was chosen, as recent rises in inflation have made the statement's focus on ending deflation out of date.