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Entrenched deflation mindset major enemy for Japan: central banker

Xinhua, March 20, 2015 Adjust font size:

Haruhiko Kuroda, governor of the Japanese central bank, the Bank of Japan (BOJ), said here Friday that the major enemy of Japan's fight against its prolonged deflation is the entrenched mindset of deflation among the public.

The average of the year-on-year rates of change in the consumer price index from fiscal 1998 to fiscal 2012 was only minus 0.3, but the deflationary situation lasted for 15 years, said the central banker, adding that the long-term trend made people engaged in economic activity assume that the deflation would continue.

"As a result, the economy fell into a vicious cycle of a decline in prices.. deflation in Japan perpetuated itself in a self-fulfilling manner and the growth potential continued to decline," said the BOJ chief at a press conference at the Foreign Correspondents' Club of Japan.

He said that the current ultra-loose monetary easing policy carried out by the BOJ aims at changing the entrenched mindset from that "prices will not rise" to "prices will rise moderately every year."

However, the central banker admitted that the BOJ is "still halfway" toward its 2 percent inflation goal as the deflationary mindset has not been dispelled completely.

The BOJ aims to achieve the inflation rate to 2 percent, excluding impacts brought by the sales tax hike last year, in fiscal 2015 starting next month through its quantitative and qualitative easing.

Current relatively low prices of crude oil have weighed on Japan's consumer prices, with the core consumer price index rising only 0.2 percent in January from a year earlier, even smaller than the read of 0.5 percent in the previous month.

The central banker said that the BOJ still has "enough tools" to combat deflation through "innovative monetary policy" and reiterated his view that the timing to achieve the 2 percent target could come "somewhat sooner or later" than initially expected, depending on developments in crude oil prices.

The central bank will make necessary adjustments "without hesitation" when it sees changes in the underlying trend in inflation, Kuroda said. Endi