IMF Official Defends Japan Central Bank 2 Percent Inflation Goal
IMF Official Defends Japan Central Bank 2 Percent Inflation Goal
(Bloomberg) -- A senior official at the International Monetary Fund defended the Bank of Japan’s 2 percent inflation target as appropriate and important to achieve.
“Two percent is what the central banks of major economies are pursuing,” Odd Per Brekk, deputy director of the Asia-Pacific department, said in an interview on Thursday. “Over time, if this can be accomplished then it helps stability in exchange rates.”
Brekk said achieving the target would create additional space for cutting interest rates during economic downturns. The BOJ is currently taking the right approach toward progressing toward its goal, he said.
The importance of a commitment to 2 percent inflation is increasingly a subject of debate, in Japan and elsewhere. Japanese Finance Minister Taro Aso caused a stir last month when he said things could "go wrong" if the central bank was too focused on it, which many took as an indication that the government was less committed.
The IMF has remained firm in its support of the target, though Brekk said more support is needed from the government to revive the economy.
“Monetary policy can’t go it alone,” he said. “You have to have a mutually supportive package of fiscal policy to stimulate demand, but also importantly, structural reform.”
Looking further ahead, Brekk said Japan should stay its course and implement its sales-tax hike in October as planned. If risks emerge, additional spending to help offset the tax increase is preferable to delaying it, he said.
“If the risks turn out to materialize on the downside, the first line of defense should be fiscal policy, but it should not be a delay in the consumption tax,” he said. “It should be spending that is well targeted toward growth-enhancing areas, and low-income households so that it’s equitable.”
To contact the reporter on this story: Yuko Takeo in Tokyo at ytakeo2@bloomberg.net
To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig, Sarah McGregor
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