TOKYO: Japan’s central bank said on Tuesday that tumbling world energy prices could push inflation to zero, marking a big setback in Tokyo’s attempt to kickstart the world’s number three economy.
While the Bank of Japan said inflation expectations were “rising on the whole” — and it held fire on launching fresh stimulus — the comments underscore faltering efforts to conquer years of deflation that have been blamed for holding back growth.
Inflation “is likely to be around zero for the time being… but, of course, depending on the trend in energy prices it may briefly fall below zero,” BoJ chief Haruhiko Kuroda told reporters after ending a two-day policy meeting on Tuesday.
“We think that the basic trend in prices… is steadily improving,” he added.
Tokyo’s economy-boosting campaign stumbled after the government raised sales taxes in 2014 to help pay down Japan’s enormous national debt.
That hammered consumer spending and led to a brief recession, while falling oil prices have complicated efforts to banish deflation.
The BoJ now expects the core consumer price index to hover in a zero to 0.5 per cent range — a long way from its 2pc target.
That target is a cornerstone of Prime Minister Shinzo Abe’s drive to resuscitate Japan’s fortunes, dubbed Abenomics, which also includes big government spending and an overhaul of the highly regulated economy.
Kuroda was tapped by Abe in March 2013 to head up the BoJ, with the former Asian Development Bank boss insisting that sustained inflation could be achieved in about two years.