By Leika Kihara
TOKYO, March 24 (Reuters) – A proposed suspension of Japan’s food sales tax will have only a limited impact on long-term inflation expectations, Bank of Japan Governor Kazuo Ueda said on Tuesday, signalling confidence over prospects of durably meeting the bank’s 2% inflation goal.
Prime Minister Sanae Takaichi’s administration is considering freezing for two years an 8% consumption tax applied to food, an idea that is now being deliberated among ruling and opposition parties.
The plan, if implemented, may temporarily push down prices, Ueda said.
“But rational consumers would make medium- and long-term predictions about the future. Therefore, the plan is likely to have only a limited impact on medium- and long-term inflation expectations,” he said.
While government steps to curb energy prices are weighing on inflation, a tight job market and changing corporate pricing behaviour are keeping intact a cycle in which wages and prices increase moderately in tandem, Ueda said.
“Underlying inflation is expected to accelerate gradually,” he said, adding that the BOJ will guide policy so that inflation stably achieves its 2% target accompanied by wage growth.
(Reporting by Leika Kihara; Editing by Tom Hogue and Shri Navaratnam)
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