Bank of Japan Deputy Gov. Masazumi Wakatabe said Wednesday that both monetary easing and fiscal expansion would be needed to tackle higher commodity prices and Japan’s low inflation at the same time.
“Since the price rises in energy and food are mainly caused by cost-push factors from abroad, it is desirable to respond to them through measures other than monetary policy, which is aimed at managing aggregate demand,” Wakatabe said in a speech.
“Possible options include fiscal policy and energy policy to reduce dependence on petroleum and natural gas,” he said, adding that the central bank will continue its easy policy and shouldn’t rule out the possibility of additional easing if the economy weakens.
The deputy governor also said medium- to long-term inflation is still expected to rise only moderately in Japan, where he believes there are “scarring effects of prolonged deflation.”