Japan's finance minister defends comments on BOJ inflation goal

FILE PHOTO: Japan's Finance Minister Taro Aso attends the G20 Finance and Central Bank Deputies Meeting in Tokyo, Japan January 17, 2019. REUTERS/Issei Kato

TOKYO (Reuters) - Japanese Finance Minister Taro Aso said on Tuesday he did not mean to suggest that the central bank could ditch its 2 percent price target when he made a comment in parliament this month that Japan could be flexible in achieving the long-elusive goal.

“I never said we could retract the 2 percent inflation target,” Aso told reporters when asked to explain the earlier comment.

He went on to say that simply accelerating prices to 2 percent was meaningless, and that it was important for the overall economic situation to improve, including company profits and wages.

The government and the central bank issued a joint statement early in 2013, just before Bank of Japan Governor Haruhiko Kuroda took office, in which the BOJ vowed to achieve 2 percent inflation and the government pledged to restore tattered public finances.

Sharp shifts in economic conditions, including a plunge in oil prices since Kuroda took office six years ago, “made it difficult to hit the price goal,” Aso said.

Earlier this month, the finance minister told parliament that the central bank could give itself more flexibility in how it defines its 2 percent inflation target, raising speculation that policymakers are no longer focused on the price goal.

The BOJ faces a dilemma. Years of heavy money printing have hampered market functioning and hurt commercial banks’ profits, underlining the rising risks of prolonged easing.

Subdued inflation has left the BOJ well behind other major central banks in dialing back crisis-mode policies, leaving it with little ammunition to battle the next downturn.

At its policy-setting meeting this month, the central bank left its massive stimulus program steady and cut its views of exports and factory output while it stuck to its overall assessment that the economy was expanding moderately.

Reporting by Tetsushi Kajimoto; Editing by Chang-Ran Kim & Shri Navaratnam