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Tokyo: Japan's new finance minister, Bunmei Ibuki, said on Monday that there was a risk of the nation's economy falling into stagflation prompted by high raw material prices, adding that it was hard for the central bank to move now given its limited policy options.
Ibuki, who also controls Japan's currency policy, declined to comment on foreign exchange rates, currency intervention policy and external reserves management, saying he would be "disqualified" if he commented on such market-sensitive issues.
"There is some danger of cost-push stagflation," Ibuki, a veteran politician who was picked for his new job as part of a broad cabinet reshuffle on Friday by Prime Minister Yasuo Fukuda, told a group of reporters in an interview.
"Rather than worsening economic sentiment due to falling domestic demand, sentiment is hurt by the fact that firms cannot pass on rising raw material costs prompted by overseas factors."
Economists say Japan's postwar economic growth cycle, which started in early 2002, has either already ended or is ending soon as the world's second largest economy struggles to cope with rises in energy and food prices as well as a global slowdown.
"There are also problems of subprime loans and so on. I have not heard what the government will say in its next monthly economic report, but I think exports will start falling slightly."
A former finance ministry bureaucrat who moved to his new post from that of the ruling Liberal Democratic Party's No. 2 position, Ibuki said it was up to the Bank of Japan (BoJ) to set monetary policy, but he added that the central bank's policy options were limited.
"It is hard (for the BoJ) to move now," Ibuki said.
"Realistically speaking, it can affect the amount of money in the market, but in terms of interest rates, it cannot move them. It is up to the BoJ to decide, so the only thing I can say is I hope it will provide appropriate money flows while watching market conditions."
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