The price stability target of 2% looks unsustainable even with improving price momentum, which the central bank places emphasis on, in 2023.
An improvement in the output gap, inflation expectations and wage growth, which form price momentum, could lead to a shift in Japan’s stubborn deflationary mindset.
Faced with a glimpse of a change in the deflationary mindset that has prevailed for over 20 years on the horizon, Bank of Japan (BOJ) governor Haruhiko Kuroda’s strong determination to finally turn things around could be a key reason behind his continued commitment to the accommodative policy stance.
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Written by Yuko Iizuka, Economist, Asset Management One Co., Ltd.
08 July 2022