(Reuters) – Central banks must remain on guard against the potential dangers of secular stagnation and low inflation as price rises driven by cost-push factors do not last long, Bank of Japan (BOJ) Deputy Governor Masazumi Wakatabe said on Monday.
Japan’s economy was in deflation for a prolonged period, but sustainable monetary easing has “certainly had a positive effect” on the real economy, Wakatabe said, defending the BOJ’s prolonged, ultra-loose monetary policy.
“The mild-inflation regime has not come to an end, and we should say that the potential dangers of secular stagnation and Japanification have not yet passed,” he said in a speech delivered at Columbia University in New York.
“Japanification” is a concept used among academic circles that points to Japan’s experience with a long period of stagnation accompanied by deflation or low inflation from the late 1990s through the early 2000s.
While inflation has recently accelerated across the globe, many of the factors pushing up prices are driven by higher costs such as the war in Ukraine, Wakatabe said.
“When an exogenous shock occurs, there is an adjustment from the old to a new price system. After adjustment, the rising inflation rate is likely to return to the steady-state inflation rate,” he said.
“So the important point is how this rate is affected. Of course, it is possible that cost-push factors will remain, but whether they will push up the steady-state inflation rate is uncertain,” Wakatabe said, adding that it was “well known that cost-push inflation does not last long.”
A former academic, Wakatabe is known as a proponent of aggressive monetary easing. His five-year term as deputy BOJ governor ends in March.
(Reporting by Leika Kihara; Editing by Stephen Coates)
