© Reuters. Bank of Japan President Haruhiko Kuroda 10/19/2019 REUTERS/Carlos Jasso
By Leika Kihara and Yoshifumi Takemoto
TOKYO (Reuters) – A panel of academics and businesspeople recommended the Bank of Japan on Monday make its 2% inflation target a long-term objective, rather than one that needs to be reached as soon as possible, in amid the rising cost of prolonged monetary easing.
The reset of the target needs to be done in a new monetary policy agreement between the government and the central bank that would replace the one drawn up in 2013, the panel said.
In the proposal, the panel also urged the need to raise interest rates in line with economic fundamentals and normalize the functioning of Japan’s bond market.
“The way the Bank of Japan conducts monetary policy must be overhauled,” Yuri Okina, a panelist who is considered one of the candidates to become the next vice-president of the central bank, told a news conference.
“By making 2% inflation a long-term target, the Bank of Japan can make its monetary policy more flexible,” she said.
With rising raw material costs pushing inflation well above its 2% target, Japan’s central bank has seen its ultra-lax policy come under fire from investors betting it will raise rates when the president’s second five-year term ends. Haruhiko Kuroda finish in April, and those of his two runners up in March.
On Monday in Parliament, Kuroda reiterated the importance of maintaining an ultra-loose monetary policy.
“Uncertainty around Japan’s economy is extremely high. So it’s important now to support the economy and create an environment where companies can raise wages,” he said.
“Japan has not yet forecast inflation to stably and sustainably reach our 2% inflation target, supported by wage increases,” Kuroda said. “As such, we need to maintain our 2% inflation target and our ultra-loose monetary policy.”
The panel consisted of around 100 academics, business people and union leaders, including those who are members of key government councils.
(Reportagem de Leika Kihara and Yoshifumi Takemoto)