Bank of Japan Governor Haruhiko Kuroda said last week that a number of recent positive developments in the country’s economy and financial sector is a “golden opportunity” for overcoming the deflation problem that has persisted for 15 years.
In April, the BoJ introduced a stimulus program designed to overcome deflation, partly by raising inflation expectations. As an example of how policy can affect inflation expectations, Kuroda pointed to former President Franklin D. Roosevelt’s New Deal, which helped to contain deflation after the Great Depression and push inflation expectations upward.
Kuroda said, however, that in attempting to influence inflation expectations, a “backward-looking element” is also necessary.
He expressed the central bank’s commitment to reaching two percent inflation, adding that inflation is expected to slightly exceed one percent in the first half of 2014 and that if Japanese consumers see prices increase, “inflation expectations are supposed to change substantially.”
“Due to a backward-looking element together with a forward-looking element, inflation expectations will continue on a rising trend, gradually converging to around two percent…” Kuroda said. “While I have said that prices are expected to rise gradually, the bank has been aiming at ensuring price stability and not by any means artificially creating inflation.”