The Bank of Japan has not achieved its 2 percent inflation target yet, as low inflation is "coexisting" with temporary price gains in energy and food items in Japan, its deputy governor said Wednesday.
The absence of widespread price gains, along with low mid- to longer-term inflation expectations amid tepid wage growth, bolsters the case for the BOJ to maintain its ultralow rate policy, Deputy Governor Masazumi Wakatabe told business leaders in Okayama Prefecture, western Japan.
In shifting to tighter monetary policy, the BOJ looks set to lag far behind its global peers, including the U.S. Federal Reserve, which has begun to raise interest rates to fight soaring inflation. The Japanese central bank's dovish policy stance is a major reason behind the yen's recent weakness.
Wakatabe's remarks underscore the BOJ's view that the recent bout of inflation, driven mainly by surging commodity prices due to Russia's invasion of Ukraine, will only be temporary even though Japan's core consumer price index excluding volatile fresh food items jumped 2.1 percent in April from a year earlier.
"Low inflation is currently coexisting with price increases in some items," Wakatabe said.
"Since this low inflation is connected to low wage inflation, it is necessary for the bank to continue with monetary easing to stimulate the economy and thereby realize a virtuous economic cycle where an increase in income leads to one in spending."
Contrary to Japan, prices are rising on a wide range of items and longer-term inflation expectations are also higher in the United States and Europe, Wakatabe said, adding that the underlying price trend at home needs to be carefully examined.
"Although the rate of change in the CPI reached 2 percent for April, if this lasts only about six months to a year, the price stability target of 2 percent cannot be said to have been achieved in a sustainable and stable manner," the deputy governor said.
Accelerating inflation could become a headache for Prime Minister Fumio Kishida ahead of an upper house election in July.
The government has been seeking to ease the pain felt by consumers from higher fuel costs and food prices with a relief package that includes subsidies to oil wholesalers.
The weaker yen is partly to blame for the recent surge in commodity prices as resource-scarce Japan relies heavily on imports.
Low inflation should be tackled by the BOJ persisting with monetary easing, Wakatabe said, while rising commodity prices should be addressed by non-monetary policy means.
"Possible options include fiscal policy and energy policy to reduce dependence on petroleum and natural gas," he added.