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TOKYO: Japan's finance minister said on Tuesday that monetary policy is key to tackling deflation and urged the Bank of Japan (BoJ) to take on a more aggressive role in staving off falling prices.
"Deflation is a problem which should be addressed from the monetary side," said the minister, Hirohisa Fujii.
"I support ... that the government will exchange views and find a solution with the Bank of Japan," he told reporters. "Demand shortages cannot be solved by fiscal steps alone."
The world's number two economy is in the grip of deflation, a general fall in prices which hurts an economy as corporate earnings fall and consumers delay spending while they wait for further price drops.
Fujii's comments underscored an emerging rift between the government and the BoJ, which said last month it would halt some of its stimulus measures in December in the face of surging public debt.
Prime Minister Yukio Hatoyama's administration is pressing the central bank not to quickly end the stimulus measures which have been in place since the economy fell into a recession last year.
The measures include buying up corporate debt to keep credit flowing to firms and ensuring liquidity in markets.
Tokyo last week declared in a monthly report that Japan is in a state of deflation, the first such announcement in more than three years, as the BoJ kept its key interest rate unchanged at 0.1 per cent.
Japan was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, hitting corporate earnings.
The current global economic downturn and a slump in commodity costs have pushed Asia's biggest economy back into deflation, hurting demand. Core consumer prices have now fallen year-on-year for seven months in a row.
- AFP/so
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