IMF's Shinohara: Japan may need more than 2 years to attain inflation target
2014-01-23 11:01:05
The Bank of Japan's aggressive monetary easing has supported an increase in consumer prices in the country, but it may take more than two years for Japan to attain the bank's 2 percent price stability target, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said in Tokyo on Thursday.
BoJ's aggressive monetary easing under the Quantitative and Qualitative Monetary Easing framework changed the economic trajectory and inflation has begun to rise, he said during a seminar on unconventional monetary policy.
"These are promising signs. But to sustain these gains and revive exports and investment, potent growth and fiscal reforms need to follow," Shinohara said.
"As long as steady progress is being made toward the 2-percent target, we do not see a need for additional monetary accommodation, but communication will need to focus on managing expectations as it will likely take more than two years," the official noted.
He said the BoJ's exit from QE "is still far off" and would likely be "gradual when the time comes." The central bank may face bigger challenges for the exit compared to earlier episodes, especially in case debt issuance by the government does not start to decline markedly, as the BoJ has shifted its asset purchases towards longer-dated securities as well as risk assets.
"After inflation expectations have been anchored at 2-percent in a stable manner, clear communication about the modalities of exit will be essential to contain financial volatility and avoid deterioration in sentiment which could hurt price stability," Shinohara noted.
The BoJ retained its assessment of the economy largely unchanged in January, according to its monthly report published Thursday.
The bank noted that the economy has continued to recover moderately, but cautioned that there has been a front-loaded increase in demand prior to the April consumption tax hike.
BoJ's assessment of the overseas economies remained upbeat. Japan's exports are picking up and industrial production is showing a moderate upward trend, the bank said. Capital expenditure and public as well as housing investment have also improved, the report noted.