Japan government to urge BOJ to meet inflation goal sustainably: draft

JAPAN'S government will urge the central bank to aim at achieving its 2 per cent inflation target in a "sustainable and stable fashion," a draft of its long-term policy outline seen by Reuters showed on Wednesday (May 25).

That was a change from the wording of the current policy outline, which voices hope that the Bank of Japan (BOJ) maintains ultra-easy policy to achieve its 2 per cent inflation target.

A surge in commodity prices driven by the war in Ukraine has pushed up Japan's core consumer inflation, which excludes fresh food but includes energy costs, to 2.1 per cent in April - exceeding the BOJ's 2 per cent target for the first time in 7 years.

Analysts expect core consumer inflation to remain around 2 per cent for most of this year, as more companies pass on higher costs to households through price hikes. But overall economic demand remains weak.

The tweak in language underscores the government's hope the BOJ keeps interest rates ultra-low until there are more clues the expected rise in inflation will be sustained, rather than respond to rising prices now with immediate policy tightening.

"The government will continue to conduct macro-economic policy flexibly ... with a framework combining bold monetary policy, flexible fiscal policy and a growth strategy aimed at fueling private investment," the draft said.

"We hope the BOJ achieves its 2 per cent inflation target in a sustainable and stable fashion, with an eye on economic, price and financial developments," it said.

The government's policy draft will be the first one to be compiled under Prime Minister Fumio Kishida, and serve as a basis for future economic policy-making. It is expected to be finalised upon cabinet approval early next month.

BOJ officials have stressed the central bank won't respond to the current cost-push inflation with tighter monetary policy, and will "patiently" maintain its massive stimulus until price rises are driven by stronger domestic demand and higher wages. REUTERS