Japan economy minister rejects inflation targets and urges central bank be mobile

Japan 's economy minister on Tuesday rejected the idea of inflation targets as the central bank moves toward tightening its super-easy monetary policy, urging it instead to adopt a flexible approach.

Photo: Japan economy minister rejects inflation targets and urges central bank be mobile

Japan economy minister rejects inflation targets and urges central bank be mobile

To help spark a recovery, the Bank of Japan has kept interest rates at zero and flooded the financial system with excess cash to encourage lending for about five years.

Signs that the economy is emerging from a lengthy slump has fanned expectations that the bank will soon start to tighten policy, most likely first by reducing the cash it injects into the banking system.

Central bank officials have said a prerequisite for changing policy is convincing evidence that Japan has conquered deflation, or the state of declining prices that deadens economy by depressing paychecks and company profits.

But Economy Minister Kaoru Yosano said he was opposed to inflation targets, which some experts have suggested as a solution, saying such a measure may restrict the bank's policy.

"If you put too rigid of a framework on it, the BOJ will lose flexibility in monetary policy and that would in turn be a minus for the Japanese economy," he told reporters.

"Setting up a target before that doesn't work from the standpoint of economic policy," he said.

Over the weekend and Monday, Yosano and other politicians suggested the central bank won't face much opposition to hands-off about the central bank deciding to tighten monetary policy. In the past, they have repeatedly urged caution.

While the Bank of Japan is officially independent of the government, political opinion often has had an influence on central bank policy.

Finance Minister Sadakazu Tanigaki reiterated that deflation remains, although he softened his tone compared to the past.

"I want the BOJ to look at the economic situation broadly and judge policy in a cool-headed manner," Tanigaki said. "I see some progress, but as I have said time and again, the deflationary situation is still continuing."

The Bank of Japan's policy board holds its next meeting on March 8-9, although it is unclear whether any decision will be made at that time, reports the AP.

D.M.