The Bank of Japan must take the unusual step of preventing a return to deflation, according to a professor at the University of Tokyo who tracks prices.
The central bank should scrap its 2 percent inflation target and replace it with a goal for higher wages, said Tsutomu Watanabe, the professor of economics behind the UTokyo Daily Price Index. More quantitative easing would be pointless, he said. Shifting from prices to pay will require a change in the 2013 joint agreement between the bank and the government. A spokesman for the BOJ declined to comment.
Watanabe's logic: wages are stuck in a rut at industries nationwide and need to be kick-started. And while people expect prices to rise, they are not counting on higher salaries, so they are cutting back on spending. That is the opposite of the "virtuous cycle" Prime Minister Shinzo Abe has sought to get going.
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