TOKYO (AFX-ASIA) - Bank of Japan Research and Statistics Department director Shosaku Murayama said ongoing price falls are "sustainable." In an interview with the Nihon Keizai Shimbun, Murayama said he believes that "price declines are sustainable" as corporate profits are maintaining "a rising trend" and household incomes are becoming more "stable."
"But we should keep in mind the possibility that widening price declines could have a negative impact on the economy," he added. Murayama cited effective increases in levels of real interest rates and debt burdens as examples of the adverse impact of price falls.
However, he said he doubts the effectiveness of any monetary policy response in preventing price falls, adding that "price declines stemming from innovation cannot be halted by monetary or fiscal policy."
Meanwhile, Murayama said he sees the key cause for ongoing price falls in technology innovation rather than in weak demand. "I certainly would not contend that demand is strong. But... I do not see that demand has weakened further," he said.
"I believe that supply-side factors are a big reason why consumer price declines are widening."
He cited the success of Fast Retailing and the Uniqlo casual wear shops, among others, as hard evidence of ongoing technological innovation.
"Certain businesses -- makers of computers or apparel, for example -- are still generating profits even as they sell at low prices because they have innovated successfully, making technical advances or increasing imports from overseas," he said.
To gauge whether these developments will further exert downward pressure on the overall economy, he said he is "focusing on whether companies overall are generating profits and whether the downward trend in personal income has stopped."