BoJ's Shirai says temporary slowdown in inflation acceptable

A temporary slowdown in consumer inflation is acceptable as long as prices are rising as a trend backed by a recovery in domestic demand, a Bank of Japan policymaker said, signalling that no additional stimulus was forthcoming in the near term. But BoJ board member Sayuri Shirai warned that it may take more time than initially expected for Japan to hit the central bank's 2 percent inflation target because households have cut spending in response to the rising cost of living and slow wage growth.
"The timing of inflation approaching 2 percent now entails greater uncertainty" as inflation expectations may not heighten much throughout the fiscal year beginning in April, Shirai said in a speech delivered at the Bank of England on Tuesday. "A temporary reduction in the core CPI inflation is acceptable as long as the underlying price developments and a recovery in domestic demand continue," according to a text of her speech released on Wednesday.
The BoJ has stood pat since expanding its massive stimulus in October last year to prevent slumping oil prices, and a subsequent slowdown in inflation, from hurting inflation expectations and delaying achievement of its price target. Continued oil price falls forced the BoJ to cut its core consumer inflation forecast for the year beginning in April to 1.0 percent in its latest projections issued in January.
But the BoJ expects inflation to accelerate towards 2 percent in the latter half of fiscal 2015 as the pressure from oil price falls fades, and hit 2.2 percent in fiscal 2016. Annual core consumer inflation slowed to 0.2 percent in January, reinforcing analysts' doubts over the BoJ's view inflation will hit 2 percent at or around fiscal 2015.
Shirai has been among those in the BoJ board who feels the central bank should allow itself more time to hit the target. The former International Monetary Fund economist warned that subdued inflation seen across the world may affect Japanese price developments. The global deflationary pressures arising from the collapse in oil prices have prompted a wave of monetary easings from the European Central Bank to China to Australia. However, Shirai's comments backed the BoJ's position that its own massive money printing will not need another top-up for the moment. Still, Shirai said there was heightened uncertainty on the outlook for capital spending and private consumption. "Households' and firms' economic growth expectations may not rise unless the government's growth strategies make progress," she said.