Japan’s government says it will keep working closely with BOJ to beat deflation By Reuters

TOKYO (Reuters) – Japan’s government will continue to work closely with the Bank of Japan to conduct policy flexibly and beat deflation, a government report said on Friday.

The government also said it will “mobilize all possible policy means to transform the economy into a new growth-oriented economy,” according to the monthly report by the Cabinet Office.

The report comes after the Bank of Japan scrapped its radical policy and made its first rate hike in 17 years this week in a sign of confidence in the economy. Inflation has exceeded the BOJ’s 2% target for well over a year and unionised workers recently won the biggest pay hikes in 33 years.

“The government and the BOJ will foster widespread awareness among the public that there will be no return to deflation, and lead to an end to deflation,” the report said.

The government also raised its view on capital spending for the first time since October 2022, saying it showed “movements of picking up,” the report showed.

The upgrade was made after revised data showed capital expenditure, one of the main components of the gross domestic product(GDP), was better than the preliminary reading in the fourth quarter of 2023.

Firms’ investments to shore up semiconductors and auto-related production appear to be behind the gains, the report said.

But the government also said imports were “weakening recently”, downgrading its view for the first time since January 2023.

Imports from Asia such as mobile phones and auto-related products weakened, while supply disruptions caused by a crisis in the Red Sea appeared to have led imports from Europe to decline.

Data this week showed imports rose just 0.5% year-on-year in February versus the median estimate for a 2.2% increase, though exports rose by a better-than-expected rose 7.8%.

The overall economy was “recovering moderately though it appears to be stalling recently,” said the report, keeping the same wording from the previous month.

The government said the recovery in consumer spending appears to be pausing as new auto sales were weak due to the suspension of some auto production and shipments.