Japan Is At Last Stage Of Beating Deflation, Official Says

(Bloomberg) -- A senior Japan Cabinet Office official said the nation is at the final corner before declaring victory over deflation, a comment that suggests the government is largely aligned with the Bank of Japan.

The government is at the stage of discerning whether there remains any risk of returning to deflation, the official told reporters ahead of the release of economic growth figures Thursday that showed a surprise slip into recession. 

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Concerns over a lingering risk is the reason Japan hasn’t announced the overcoming of deflation even though price growth has stayed above the BOJ’s target for 21 months, the person said.    

Declaring the end of deflation is one of Prime Minister Fumio Kishida’s priorities. To that end he pledged last year to give income tax rebates. They will kick in from June, and some economists say Kishida wouldn’t want to announce victory over deflation before then.

The BOJ has indicated that the end of its negative interest rate policy is approaching by assuring that accommodative financial conditions will stay in place even after rates leave subzero territory. Most BOJ watchers expect the move in March or April. 

The official indicated that the timing of government’s announcement for the overcoming of deflation and BOJ moves toward normalization don’t have to come at the same time. The official said those moves would depend on decisions made by each entity. 

Any declaration of the end of deflation would be made in the government’s monthly economic assessment, according to the official. That points to a chance of Kishida announcing it at the economic ministers’ meeting that decides the economic assessment. 

Investors and economists will be looking to see if any changes might be made to a 2013 joint statement between the government and BOJ. That statement calling for the end of deflation became the basis for the central bank to unleash its massive monetary easing program. 

It’s important for the BOJ to conduct monetary policy with the 2% inflation target in mind while specifics of measures are left to the central bank, the official said.  

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