Japan advisers urge focus on sustaining growth after inflation hits BOJ goal

Japan's top economic panel advised the government to prioritize sustained growth over merely hitting the central bank's 2% inflation target, according to a submission on Wednesday. The four external advisers emphasized that higher incomes, productivity, and long-term growth expectations are crucial for a lasting exit from deflation. While steady progress has been made, private consumption remains weak, and real income improvements have not yet fully materialized.

The members highlighted risks such as energy prices, financial market conditions, and AI-related investment trends, urging policymakers to monitor these developments and respond flexibly to maintain macroeconomic stability. Prime Minister Sanae Takaichi echoed this sentiment, stating that the ultimate goal is to ensure people benefit from economic growth through higher incomes and productivity.

The government and the Bank of Japan (BOJ) agreed to continue working closely together to achieve price stability and sustainable economic growth. The BOJ has warned of the need to raise interest rates to guard against upside price risks and prevent underlying inflation from exceeding the 2% target. The core consumer price index rose an annual 2.1% in September, surpassing the BOJ target for the first time in nine months.

The government has not officially declared victory over deflation, stressing the need for clearer evidence that the economy will not relapse into persistent price declines.