Japan’s long-term struggle with deflation continues to provide lessons for the rest of the world, Federal Reserve Bank of St Louis president James Bullard said yesterday in Tokyo.
“It’s been frustrating in Japan, but it’s also been instructive for the rest of the world to understand what kinds of things can happen if inflation expectations get rooted at a low level,” Bullard said.
People in Tokyo often talk to him about how deeply the so-called deflationary mindset took hold here and how hard it is to change it, he said.
“The whole idea of a steady state is once you are in it, it’s not easy to leave it, and that seems to be the issue in Japan much more than it is in other countries around the world,” Bullard said.
He said there have been “some advantages” to the Bank of Japan’s current policy, and that Japan should stick with its 2% inflation target, an international standard.
“If you name some other inflation target, you are committing to a permanent appreciation or depreciation of a currency and that brings its own complications,” he said. “It’s better to stick with the international standard on inflation targeting.”
While he sees the BoJ’s current policy as sustainable, recent weak inflation data have surprised him.
“Whether that will heat up a little bit going forward is going to be one of the key questions facing the BoJ,” he said. “We will just have to wait and see at this point, but inflation has certainly been lower than would’ve been expected.”
Bullard: Japan should stick with its 2% inflation target.
