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BOJ’s QE sceptic says appropriate inflation lower than 2%

[MAEBASHI] The Bank of Japan should give itself more time to achieve its ambitious price target, board member Takahide Kiuchi said, warning that an appropriate level of inflation for Japan is currently lower than the bank's 2 per cent target.

The remarks by Mr Kiuchi, who has long been sceptical of the central bank's radical stimulus programme, contrast with Governor Haruhiko Kuroda's conviction that Japan is on course to meet the inflation target during the year beginning in April.

Mr Kiuchi repeated his calls for watering down the two-year timeframe for meeting the inflation target, warning that Japan will see prices rise only gradually given the economy's low growth potential. "Inflation may reach 2 per cent at some point in the future if, as hoped for, structural reforms progress and boost Japan's growth potential," the former market economist told business leaders in Maebashi, a city north of Tokyo, on Thursday. "But it's important to guide policy based on the understanding that an appropriate level of inflation for Japan now is lower (than 2 per cent)," he said.

Stripping away the effect of last year's sales tax hike, the core consumer price index - which excludes volatile food but includes oil costs - rose just 0.2 per cent in the year to January, slowing from 0.5 per cent in December.

In deploying its radical stimulus in April 2013, the BOJ pledged to accelerate inflation to 2 per cent in roughly two years through aggressive asset purchases. It eased policy again in October last year, but inflation has grounded to a halt on slumping oil prices and weak household spending.

The BOJ's nine-member board has been deeply divided since then. Kuroda and his two deputies are adamant that the price target can be hit in the next fiscal year, while other board members are sceptical about setting a deadline for achieving the goal.

Mr Kiuchi, worried about the drawbacks of the BOJ's huge asset purchases, is among the four dissenting board members when the central bank opted to ease policy further in October. He has continued to call for the BOJ to revert to the pace of asset buying prevailing before October's increase. "If the BOJ strengthens monetary easing excessively to push up prices in a short period of time to a level beyond what is justified by the economy's growth potential, this could destabilise economic activity and prices," he said.


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