TOKYO (MNI) – Japanese Prime Minister Naoto Kan told lawmakers on
Monday that the government and the Bank of Japan share “roughly the same
goal” in guiding the inflation rate into a low and stable range in
positive territory.

Kan basically repeated earlier remarks, suggesting that without
setting a rigid inflation target, both parties can work together toward
achieving price stability.

BOJ Governor Masaaki Shirakawa also told the lower house budget
committee that the central bank will undertake its maximum efforts in
safeguarding sustained economic growth an ending years of deflation,
adding that the BOJ’s aim is to guide the annual inflation rate to
around 1% in the longer term (below 2% and above zero).

The governor noted that Japan’s economy has been improving since
the second quarter of last year after the global recession but that the
level of activity is still low.

Japan’s core consumer prices fell 1.0% from a year earlier in June,
the 16th straight y/y drop, as retail discounts and subsides for high
school education continued to offset higher energy costs, the Ministry
of Internal Affairs and Communications said Friday.

But the pace of decline in the core CPI — excluding fresh food but
including energy — decelerated from -1.2% in May and -1.5% in April.

The BOJ has said the year-on-year rate of decline in the core CPI
is expected to slow as the negative output gap — overcapacity vs. slack
demand — continues shrinking gradually. The bank’s board expects the
core CPI to rise 0.1% in fiscal 2011 after two years of declines.

The government also expects the CPI to start rising on a
year-on-year basis in fiscal 2011 and it also will seek to achieve an
average 1% rise in prices through fiscal 2020.

Asked if he thinks the BOJ is responsible for the recent economic
slump, Shirakawa replied that economic conditions are “too complex to
clearly say yes or no” to the question.

Kan repeated that the BOJ has been taking a series of measures in
order to fight deflation and support a sustained economic recovery, but
added that he wants the bank to “do its part within its own limits in
guiding the unemployment rate lower” from the current level above 5%.

Shirakawa repeated that the BOJ’s mandate in the BOJ Law stipulates
that the central bank will contribute to the national economy by
ensuring price stability.

Japan’s unemployment rate rose to 5.3% in June from 5.2% in May, as
the number of the unemployed rose from the previous month, data from the
Ministry of Internal Affairs and Communications showed Friday.

But the data also showed that the number of unemployed people fell
when compared with a year earlier, the first drop in 20 months,
indicating that the labor market is slowly catching up with the recovery
in production and exports.

msato@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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