SINGAPORE (AFX-ASIA) - Bank of Japan deputy governor Yutaka Yamaguchi said deflation in Japan may worsen further due to weak demand.
"Some worsening of deflation due to weakening demand cannot be totally ruled out, moving forward," Yamaguchi told central bankers and top officials of international financial institutions at the annual International Monetary Conference.
He said this outlook was the reason why the BoJ eased rates in March, the effects of which are still working through the system. "My bottomline is that while we are currently committed to provide as much monetary stimulus to the economy, there is a limit to what monetary stimulus can do," Yamaguchi said.
He said that it is imperative to for serious reform to take hold in Japan, adding that such structural reforms may be inflationary but they are significant.
On proposals for Japan to implement inflation targetting, Yamaguchi said the BoJ is not too keen on it.
"While we admit to its virtues..., the BoJ is rather cautious on it... We don't know the rate of inflation that will be consistent with sustainable growth..."
v Yamaguchi said the BoJ is "unfortunately, severely constrained" in this matter, adding: "We cannot promise what we cannot deliver."