TOKYO -- After a long battle with deflation, the economy can now handle structural reforms, Bank of Japan Gov. Haruhiko Kuroda argues, urging a public-private response to labor shortages and other impediments to growth.
The BOJ's qualitative and quantitative easing program has "produced the intended results," Kuroda told The Nikkei in a recent interview. Inflation, as measured by the core consumer price index, has ticked up to almost 1.5%, and Kuroda sounded confident about reaching the central bank's 2% target next fiscal year.
Consumer demand has dropped, albeit from an elevated level, since the April 1 consumption tax hike, but not more than the BOJ had expected. The economy should start shrugging off the aftereffects this summer, Kuroda said, predicting that economic growth will resume in the third quarter.
The government will decide as early as December whether to proceed with a second sales tax hike next year. The BOJ's economic forecasts assume that the current 8% rate will go up to 10% as planned, Kuroda said, adding that taxation is a matter for lawmakers rather than the central bank. What is important, he stressed, is for Japan to achieve "a sustainable fiscal structure."
While Kuroda rejects a piecemeal approach to monetary policymaking, he said that "we are ready to make adjustments -- whether it is an additional easing of credit or some other measure -- without hesitation" should prices stray from the BOJ's intended path. The governor did not elaborate on what tools the bank might use, mentioning only "various possibilities."
Kuroda spoke with particular urgency about the threat to growth posed by shortages of labor and fixed capital. The government, the BOJ and the private sector all need to wrestle with the challenge of boosting Japan's productive capacity, he said.
While a scarcity of workers gives a brief fillip to prices by pushing up wages, it can also force stores to cut business hours or cause factories to struggle to fill orders. Japan is already seeing examples of this. Over time, such constraints would take a toll on corporate earnings, endangering the virtuous cycle of economic growth that Kuroda envisions.
Kuroda argued that the nation should seize the opportunity presented by the end of deflation to quicken the pace of structural reforms, highlighting three priorities. First, the private sector must invest with an eye toward growth. Second, women and seniors must be brought into the workforce in greater numbers to help ease labor shortages. Lastly, Japan needs regulatory reform to increase productivity.
Looking ahead to the next installment of the government's growth strategy, due out in June, Kuroda said it is vital to carry out the plan with "a sense of urgency."