Japan's central bank chief denies differences between BOJ, government

Masaaki Shirakawa, the governor of the Bank of Japan (BOJ), denied on Friday there was a difference of opinion between his organization and the government, despite seemingly contradictory statements from the two sides on the economy being released earlier in the day.

"I don't think there is a difference in our views on price moves," Shirakawa said at a news conference.

Earlier in the day, Deputy Prime Minister Naoto Kan and Finance Minister Hirohisa Fujii said that they believed that the Japanese economy had fallen into deflation, and that without action from the private sector, there may be little the government can do to rectify the situation.

A BOJ report released later said that the economy was beginning to recover, seeming to contradict the government view.

"If the government's view that the economy is in moderate deflation is based on continuous price falls, it is not different from what we have shown in our outlook report," Shirakawa said at the news conference. "The cause of sustained price falls is a lack of demand. To solve this problem, we need to expand final demand for corporate spending and for personal consumption as this is the root cause. The government, central bank and private sector must work together to resolve this."

While the manufacturing sector in Japan has shown improvement in the last few months, the benefits are yet to trickle down to households, which has led to less demand for products and deflation.

"Providing liquidity can prevent prices from falling. However, when demand itself is weak, prices won't rise just through liquidity provision," Shirakawa said.

The government of the Democratic Party of Japan (DPJ) has started work on an additional budget for this fiscal year to attempt to improve economic conditions for the nation. Since last year Japan has struggled to recover after shock waves from the global credit crisis reached its shores.

Source: Xinhua