The Bank of Japan’s policies are finally nearing a “true dawn,” Deputy Governor Hiroshi Nakaso said on Thursday as he predicted a long-awaited build-up of inflation pressures in an economy long haunted by deflation.
Nakaso also said in a speech in London that he expected a substantial improvement in productivity, boosted by a tight labor market and government policies.
Recent business surveys have painted an upbeat picture of activity in Japan’s economy, bolstering hopes at the Bank of Japan (BOJ) that a sustained economic recovery will boost wages and household spending.
Still, many analysts expect inflation to remain short of the central bank’s 2 percent target.
“Looking back at the policy responses, although there were successes, I have to admit that there were also shortfalls, as well as a couple of false dawns,” Nakaso said.
“But we have learned some lessons. This time around, there seem to be more reasons to believe that the true dawn is near.”
“There is a good prospect of inflation building up, he added.
Nakaso said a very tight labor market with full employment, as well as accommodative monetary conditions, should help to counter costs to the economy from necessary structural reforms.
In answer to a question from the audience after his speech, Nakaso said the BOJ’s yield curve control policy – a pledge to guide 10-year government bond yields around zero percent – ought to continue for a while yet.