TOKYO Nov 27 The Bank of Japan should expand
its quantitative easing and keep interest rates virtually at
zero until 1 percent inflation is achieved, so as to help ensure
an escape from nagging deflation, the OECD said on Tuesday.
Japan's economy will be strong enough for the government to
implement a planned sales tax hike next year, and the government
cannot afford to delay further steps to improve public finances,
The call for more easing comes after a split emerged within
the BOJ at its policy board meeting on Oct. 30, when two new
members made a proposal similar to what is being recommended by
the OECD, the Paris-based Organisation for Economic Cooperation
The OECD report also coincides with intensified political
debate about the BOJ, with opposition leader Shinzo Abe of the
Liberal Democratic Party, who is expected to become prime
minister after an election on Dec. 16, urging the BOJ to use
negative interest rates and indirectly fund public works
spending to spur growth.
"We would recommend that the BOJ continues its policies
until 1 percent inflation is actually achieved," Randall Jones,
a senior economist at the OECD, told reporters in Tokyo in a
"Japan had some inflation before the financial crisis. Japan
should be able to achieve inflation again soon."
The BOJ has a scheme in place to pump 91 trillion yen ($1.11
trillion) through the economy via asset purchases and fixed-rate
lending. It is also preparing a new scheme to lend an unlimited
amount to commercial banks.
The central bank has steadily expanded the scheme since its
introduction two years ago but is still frequently a target for
critics who say it needs to do more, with the economy hobbled by
deflation for much of the past two decades.
Minutes of the BOJ's Oct. 30 meeting showed that two
economists who joined the central bank in July wanted the BOJ to
commit to easing policy until a 1 percent rise in consumer
prices has been maintained.
That would be stronger than the BOJ's current commitment to
maintain an easy policy until 1 percent inflation is in sight.
Japan's core consumer prices excluding fresh food and energy
are expected to fall 0.4 percent next year due to deflationary
pressure, then rise 1.3 percent in 2014, the OECD report said.
Gross domestic product is forecast to expand 0.7 percent in
2013, lower than the OECD's previous forecast of 2.0 percent
growth, as a sharp decline in exports in the second half of this
year weighs on the economy, Jones said.
Japan's economy is then expected to expand 0.8 percent in
2014, according to the OECD, which promotes policies to improve
economic and social well-being, and provides a forum in which
governments can work together to share experiences and seek
solutions to common problems.
The economic outlook is strong enough for Japan to go
through with its plan to raise the sales tax to 8 percent from
the current 5 percent in 2014, and then to 10 percent in 2015,
Japan also needs to stick with fiscal reform, Jones said, if
it is to have chance to trim its public debt burden, which is
the worst among advanced nations at twice the size of its $5
Economists polled by Reuters poll earlier this month said
the export-reliant economy has probably slipped into a mild
recession but a recovery is likely in the first quarter of next