With the BOJ approaching its price target and the government and the BOJ struggling over their response to the exit from monetary easing, attention focused on how debate over a declaration of an exit from deflation could spread.
Just before the BOJ was to declare that its 2% price target had been reached, a senior Ministry of Finance official suggested that debate over a declaration of an exit from deflation could spread. This prompted speculation that some might conclude that the need for economic stimulus had diminished.
Concern was expressed within the government that a declaration of an exit from deflation would “constrain responsible proactive fiscal policy,” and it was reported that this could make the government’s response more difficult. In the Diet, deliberations on a bill to cut consumption tax were progressing, while a policy to implement subsidies for electricity and gas during the winter months was reportedly approved.
Debate over indicator trends was also reportedly held within the Cabinet Office’s economic analysis division, and it was reported that adjustments to balance economic activity and prices would continue. Against this backdrop, a situation in which coordination between the BOJ and the government would be tested is anticipated.