Japan feels higher prices are better

Tokyo, Nov. 3: Bank of Japan governor Haruhiko Kuroda may not need to convince Japanese people like Kazue Shibata that deflation brings problems, but getting them to believe that higher prices will make things better is proving to be a harder sell.

Shibata, 65, who runs a small dress shop in central Tokyo, worries the BOJ’s mission to hit a 2-percent inflation target could end up driving business away unless people also have more money in their pockets.

“If prices rise, people might not buy as much,” she said, echoing a concern of many private-sector economists.

On Friday, Mr Kuroda’s BOJ doubled down on a high-stakes bet that the central bank can shake Japan’s consumers from a defensive set of expectations hardened by a decade and a half of falling prices,

On Friday, Mr Kuroda’s Bank of Japan doubled down on a high-stakes bet that the central bank can shake Japan’s consumers from a defensive set of expectations hardened by a decade and half of falling prices, lower incomes and stopand-go growth.

lower incomes and stopand-go growth.

“It’s important for the BOJ to strongly commit to achieving its price target to get that price target firmly embedded in people’s mindset,” Mr Kuroda said at a news conference on Friday, after the BOJ stunned mar- kets with an unexpected expansion of its monetary stimulus programme.

“It won’t do much good in trying to shake off the public’s deflation mindset if you just say inflation will reach 2 per cent some day,” Mr Kuroda said.

At the core of Prime Minister Shinzo Abe’s “Abenomics” agenda is the assu-mption that the outlook for sustained inflation will prompt consumers to anticipate rising prices, and that consumption will rise as a result.

That represents a sea change for a country used to deflation, where clinging to cash today meant greater buying power tomorrow, a set of expectations that has proven hard to shake a year-and-a-half into an unprecedented easing by the Bank of Japan.

Ms Shibata, who has been runnning a shop in Tokyo’s Higashi Azabu neighbourhood offering ready-to-wear attire and custom-made items for about three decades, has seen the pain from that kind of slow growth — and falling prices — on her business.

“The prices people were willing to pay for ordermade clothes fell, until they were almost the same as ready-to-wear,” said Ms Shibata. — Reuters