OECD Suggests Japan Consider a Range for Its Inflation Target

(Bloomberg) -- It may be time for the Bank of Japan to consider some changes to its monetary policy framework, including its elusive price goal, according to the OECD’s latest economic outlook.

Given that price gains have stayed persistently below the central bank’s desired 2 percent level, one option could be to switch to a range with the lower bound below this, the Paris-based Organisation for Economic Co-operation and Development said Wednesday.

The OECD also lowered its 2019 inflation forecast for Japan to 1.4 percent from 1.5 percent, and its economic expansion estimate to 1 percent from 1.2 percent.

BOJ Governor Haruhiko Kuroda in 2013 instituted a massive monetary stimulus program aimed at generating 2 percent inflation. Five years later, the central bank’s key price gauge is still hovering around 1 percent.

Meanwhile, its aggressive asset purchases have made its holdings of bonds and other securities worth more than the entire Japanese economy. With side effects piling up, the BOJ has been tapering purchases and tinkering with operations in a bid to make its stimulus more sustainable.

The OECD also suggested Japan could consider making stronger increases in the minimum wage. Further reforms in the labor market, such as eliminating the mandatory retirement age and reducing disparities between regular and non-regular workers, are also needed, it said.

It supported the government’s plan to increase the sales tax in 2019, adding that it should be followed by more gradual increases that bring the levy closer to the OECD average of 19 percent.

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