By Leika Kihara
TOKYO, Oct 23 (Reuters) - Japan has yet to meet the conditions for officially declaring victory over deflation, Economy Minister Minoru Kiuchi said on Friday, exposing a divide with the Bank of Japan as it sees the economy on the cusp of durably achieving its 2% inflation goal.
Kiuchi's remarks, from a close ally of dovish Prime Minister Sanae Takaichi, underscore a disconnect between the government and the BOJ on price moves.
They also come ahead of the BOJ's policy meeting next week,
when it is seen signalling that underlying inflation has hit its 2% target as the Iran war-induced energy shock and rising import costs from a weak yen push up prices.
The government, however, has stopped short of declaring victory over deflation, saying it needs clearer evidence that the economy will not slide back into a period of persistent price declines.
"We need to be cautious in making the decision and look comprehensively at consumer price moves, GDP deflator and factors driving underlying inflation," Kiuchi said when asked whether the government could formally declare an end to deflation.
"It's important that Japan does not revert to deflation," he said, adding it was premature to declare an end to deflation.
Kiuchi made the remarks at a news conference, when asked how the government will align its view on deflation with the BOJ's assessment that underlying inflation may have hit its target.
While fuel subsidies have helped temper price pressures, core consumer inflation has hovered near the BOJ's 2% target for four years, challenging the government's view that Japan has yet to fully escape deflation.
The core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 2.1% in September from a year earlier, data showed on Friday.
Some analysts say the government's reluctance to declare an end to deflation reflects concern that doing so would narrow its room to pursue accommodative fiscal and monetary policy.
Declaring an official end to deflation could also draw calls to tweak a joint government-BOJ statement, signed in 2013, pledging coordinated efforts by the two sides to end deflation including by "pursuing monetary easing to achieve the BOJ's inflation target at the earliest date possible." The government and BOJ reaffirmed the joint statement in 2025.
"I hope the BOJ conducts monetary policy appropriately to stably and sustainably achieve its 2% inflation target, taking into account the principles of the joint BOJ-government statement," Kiuchi said.
Considered an advocate of loose monetary policy, Kiuchi has repeatedly signaled his reservation over the BOJ's rate-hike plans.
Kiuchi said on Tuesday he hoped to attend the central bank's policy meeting next week, when it is seen keeping interest rates steady, but revising up its inflation forecast and signalling its resolve to keep hiking borrowing costs.
(Reporting by Leika Kihara; Editing by Jacqueline Wong and Shri Navaratnam)
