TOKYO: The end of Japan’s battle with deflation “is in sight” although there still is “a big challenge to anchor” people’s inflation expectations to 2 percent, Bank of Japan Deputy Governor UCHIDA Shinichi has said.

He made the remarks in a speech at an international conference held at the BOJ’s headquarters in Tokyo on Monday, in reference to steps the central bank took in March, including the lifting of its negative interest rate policy, for a shift from its unprecedented monetary easing. The BOJ aims to help the country achieve 2 percent inflation stably and sustainably.

The inflation rate declined in the 1990s and 2000s due to chronic demand shortages, but the BOJ’s monetary policy, “which was mostly conventional at that time and faced with the zero lower bound constraint, could not sufficiently stimulate demand,” Uchida said of the factor behind Japan’s prolonged deflation.

As a phenomenon unique to the Japanese economy, he pointed out that “the mild but persistent deflation created a social norm based on the belief that ‘today’s prices and wages will be the same tomorrow.'”

The social norm is “set to be dissolved,” Uchida said, also citing structural changes in labor market, such as serious personnel shortages.

“This time is different,” he said, showing his expectation that Japan will not go back to deflation.

JIJI Press