Shirakawa Says Should Avoid Narrow Focus on Inflation
Bank of Japan Governor Masaaki Shirakawa said central banks need to look at more than just current inflation rates to develop policies that aim to prevent economic bubbles before they occur.
“If we focus narrowly on the current observed inflation rate, there is a risk that the necessary monetary policy adjustments might be delayed, inducing large fluctuations in economic activities,'' Shirakawa said in a speech in Tokyo today. “It is important to design a policy and institutional framework less prone to the formation of a bubble ex ante.''
Shirakawa said Japan's “extremely subdued'' inflation during the asset-price bubble of the late 1980s meant only a minority of economists were calling for higher interest rates. The bursting of the bubble caused asset prices to plummet and led to more than a decade of economic stagnation and deflation.
“The perception that Shirakawa respects economic theories is penetrating among investors,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo no teletrack payday loans.
Economists expect the Bank of Japan to keep its benchmark interest rate at 0.5 percent this year as economic growth slows and costlier oil and raw materials fan inflation. The bank last month dropped a call for gradual rate increases and slashed its growth forecast in its twice-yearly outlook.
Shirakawa said the current U.S. financial-market turmoil, like Japan's bubble, has caused asset prices to tumble and “exerted adverse effects on the real economy.''
“Be it in Japan or in the U.S., many of recent bubbles occurred, quite paradoxically, following a continued low interest-rate period after price stability was achieved or deflation scare heightened,'' he said.