Japan bids to end deflation and boost growth

22 Jan 13
Japan’s government and central bank have announced plans to work together to promote growth, overcome deflation and ensure the ‘credibility’ of the country’s fiscal management.

By Nick Mann | 22 January 2013

Japan’s government and central bank have announced plans to work together to promote growth, overcome deflation and ensure the ‘credibility’ of the country’s fiscal management.

A joint statement issued today commits the Bank of Japan to a 2% inflation target in an attempt to end years of falling prices, profits and incomes. The Bank will aim to achieve this target ‘at the earliest possible time’. The current price index rate is –0.2%.

‘The Bank recognises that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening competitiveness and growth potential of Japan's economy make progress,’ the statement explained.

‘Based on this recognition, the Bank sets the price stability target at 2% in terms of the year-on-year rate of change in the consumer price index.’

This will be accompanied by monetary easing – actions aimed boosting the supply of money in the Japanese economy to encourage economic activity. As part of this, the Bank made its asset purchasing programme, which principally involves the purchase of government debt, open-ended.

‘The Bank will pursue aggressive monetary easing, aiming to achieve the above-mentioned price stability target, through a virtually zero interest rate policy and purchases of financial assets, as long as the Bank judges it appropriate to continue with each policy measure respectively,’ it explained in a separate statement.

For its part, Prime Minister Shinzo Abe’s government said it would formulate measures aimed at strengthening the Japanese economy’s growth potential and competitiveness, and promote them ‘strongly’.

‘Those measures include all possible decisive policy actions for reforming the economic structure, such as concentrating resources on innovative research and development, strengthening the foundation for innovation, carrying out bold regulatory and institutional reforms and better utilising the tax system,’ the joint statement explained.

Earlier this month, Abe announced a 10.3 trillion yen stimulus package aimed at reviving the flagging Japanese economy.

Japan’s public debt reached an estimated 205% of its gross domestic product in 2011. Today’s statement also included a commitment by the government to ‘steadily promote measures aimed at establishing a sustainable fiscal structure with a view to ensuring the credibility of fiscal management’.

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