The 2% inflation target that guides monetary policy in Japan is too rigid, said Mana Nakazora, a private-sector member of the influential Council on Economic and Fiscal Policy.
(Bloomberg) — The 2% inflation target that guides monetary policy in Japan is too rigid, said Mana Nakazora, a private-sector member of the influential Council on Economic and Fiscal Policy.
The council, which is chaired by Prime Minister Fumio Kishida, is responsible for periodically reviewing Japan’s efforts to create price stability and sustainable economic growth, as set out in a 2013 joint statement from the government and the Bank of Japan.
A statement is needed that says the BOJ “will operate flexibly” without having to adhere to the 2% price target, Nakazora, who is vice chairperson of the global markets at BNP Paribas SA’s Japanese securities unit, said in an interview on Wednesday. She said the matter may be discussed by the council.
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The BOJ’s adjustment in July to its yield-curve control program effectively doubled its cap on long-term interest rates and set off intense speculation that Japan may be getting closer to normalizing monetary policy.
The 2013 joint statement is at the heart of that policy and states that the BOJ will aim to achieve its 2% target “at the earliest possible time.”
Nakazora, who became the first female private-sector member of the council in 2021, said that the government itself will be troubled if interest rates jump suddenly, given its debt burden.
A disorderly rise in long-term interest rates and a simultaneous weakening of the yen must be avoided, she said, adding that confidence must be maintained in Japanese government bonds.
Nakazora said that in the long term, a downgrade of Japan’s credit rating is a very real risk, and to avoid this the BOJ needs flexibility and the government needs to improve its fiscal position.
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