Japan's Finance Minister Naoto Kan reiterated his desire to target inflation, setting up a clash with the Bank of Japan over how best to pull the country out of deflation. Kan, speaking in an interview with the Yomiuri newspaper published yesterday, said that a one per cent rise in prices was desirable and that the central bank basically held the same view.
He also told parliament that while the government will take steps to boost domestic demand, he wanted the BOJ to do its part to overcome persistent price falls.
"It would be more difficult to restore Japan's finances without beating deflation," Kan told a lower house budget committee.
"I hope the BOJ will strive to pull Japan out of deflation, in sync with [government efforts]", he said.
The government fears deflation and a strong yen could hurt Japan's fragile recovery ahead of elections in the summer, but it is limited in what it can do by the country's massive public debt. As one way to finance its spending, the finance minister also said he would consider devoting sales tax revenue to welfare costs, suggesting a sales tax rise may be possible in future as Japan's ageing society means health costs are likely to grow.
But ratings agency Standard and Poor's downplayed the benefit of any such rise if done too early in Japan's economic recovery.
While the government and central bank may agree on an ideal level of inflation, they remain apart over how to achieve it. (Reuters)
Standard and Poor's ratings agency said yesterday that there was relatively little chance it would downgrade Japan's sovereign rating this year.
The possibility of Japan's ratings being downgraded cannot be disregarded if there is a major shock such as a double dip in the global economy or another round of financial crisis, said Standard and Poor's analyst Takahira Ogawa.
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