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Japan may see inflation perk up in post-COVID era, says BOJ board member

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Japan may see inflation perk up in post-COVID era, says BOJ board member
Japan may see inflation perk up in post-COVID era, says BOJ board member   -   Copyright  Thomson Reuters 2021
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By Leika Kihara

TOKYO – A post-coronavirus pandemic world could offer an opportunity for Japanese firms to raise prices and help the central bank achieve its 2% inflation target, Bank of Japan board member Seiji Adachi said on Wednesday.

While restaurants and hotels may need to continue shouldering the cost of steps to prevent the spread of the virus, consumers may become more willing to pay more for value-added services, Adachi said in a speech.

“This could offer firms a chance to charge more for higher quality services,” said Adachi, a former market economist.

“A post-pandemic world may offer a big chance to achieve our 2% inflation target,” if retailers are able to charge more for their services unlike in Japan’s past periods of deflation, he added.

The BOJ currently caps long-term interest rates around zero, and buys huge amounts of government bonds and assets to achieve its elusive 2% inflation target.

It also put in place last year a series of steps to channel money via financial institutions to firms hit by the pandemic.

Adachi said the BOJ needs to maintain its ultra-loose policy to help the economy remove slack and create an environment where society becomes more tolerant of price hikes.

He also said the BOJ must take into account changes in corporate funding conditions in deciding whether to extend the pandemic-relief programme beyond the current September deadline.

“We can’t rule out the possibility that (some companies) may face funding problems,” Adachi said. “We must deepen debate on what to do with the programme, while scrutinising developments in future corporate funding,” he added.

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