Key facts
- The four external council members said private consumption remains weak and gains in real incomes are not fully realized.
- The panel cited energy prices, financial market conditions and AI-related investment trends as risks to monitor.
- The BOJ has flagged the need to keep raising interest rates to guard against upside price risks.
- The government has not officially declared an end to deflation, saying it needs clearer evidence.
Private-sector members of the Japanese government's top economic panel said on November 11 that reaching the Bank of Japan's 2% inflation target is not an end in itself. In a submission to the Council on Economic and Fiscal Policy, the four external experts said higher incomes and productivity were needed for a lasting exit from deflation.
The council is chaired by the prime minister and includes the finance minister and the Bank of Japan governor. The submission followed the central bank's declaration in October that it had achieved its inflation target after nearly 14 years.
The experts said progress away from long-entrenched deflation had been steady, but private consumption remains weak and improvements in real incomes and long-term growth expectations have yet to be fully realized. "What matters is not treating inflation itself as the end goal, but achieving a growth-driven economy with sustained increases in real incomes and productivity," they said.
The members cited risks including energy prices, financial market conditions and trends in AI-related investment, and urged policymakers to monitor developments and respond flexibly. They also said the government and the BOJ should closely coordinate and share views on economic and price conditions.
The BOJ has flagged the need to continue raising interest rates to guard against upside price risks and prevent underlying inflation from overshooting its 2% target. Core consumer prices rose 2.1% year on year in September, exceeding the target for the first time in nine months.
The government has stopped short of officially declaring victory over deflation, saying it needs clearer evidence that the economy will not slide back into persistent price declines.