It is reassuring that the Bank of Japan has shown confidence in bailing the nation out of deflation. But at all costs it must not let its guard down. The central bank must further reinforce its cooperation with the government.

At its policy board meeting Wednesday, the central bank decided to maintain its policy of monetary easing of “a different dimension,” which was adopted in April last year.

The bank also released its semiannual Outlook for Economic Activity and Prices Report, in which it estimates the outlook for economic growth and the consumer price index, as well as its first outlook for fiscal 2016.

Last April, the central bank adopted a target of achieving 2 percent inflation in two years.

In its outlook report, the bank estimates that the nation’s core consumer price index, excluding the impact of the consumption tax hike on April 1, will rise 1.9 percent in fiscal 2015 and 2.1 percent in fiscal 2016. The report can be seen as the bank’s scenario for pulling the nation out of deflation, in accordance with the target.

Central bank Gov. Haruhiko Kuroda said at a press conference Wednesday that the nation is “on a steady track” to achieve the 2 percent inflation target. By showing the central bank’s strong resolve to achieve the target, it also aims to enhance the effect of its policy decision.

But the central bank’s estimates may be too optimistic, which is worrying.

Private research organizations have given a median forecast of 1 percent growth in the core consumer price index for fiscal 2015, only half the increase predicted by the central bank. Also, more than 70 percent of economic research organizations expect the central bank to take additional monetary easing measures by August.

It further needs to be noted that three members of the nine-member policy board expressed opposition to the wording in the outlook report concerning the timing for achieving the 2 percent inflation target.

Outlook uncertain

Behind these critical opinions is uncertainty about the nation’s economic outlook. The financial burden on ordinary households has increased as one month has passed since the consumption tax rate was raised from 5 percen to 8 percent. We cannot dispel concern that there will be a fall in consumer sentiment and that real consumer prices, excluding the effect of the consumption tax hike, will be pushed down.

Price increases in recent months have mostly stemmed from “detrimental price increases” that will pull down the overall economy. The yen’s weakness has markedly pushed up the purchase prices of imported raw materials, and power companies have had to raise their utility rates because they must import more fuel for thermal power generation since all nuclear reactors remain halted.

The central bank must examine the effect of its policy measures properly, and take additional appropriate measures if necessary.

However, the market will often overreact when expectations abound for the central bank to take additional monetary easing measures. To avoid sending the market into disarray, the central bank needs to communicate detailed information to the market.

Needless to say, the central bank’s monetary policy alone cannot fully bail the nation out of deflation. It is essential for the government to promote an effective growth strategy and realize a sustainable growth led by the private sector.

The bottom line is that the government needs to create the kind of environment that will help private-sector companies seize new business opportunities, through such measures as drastically easing regulations.

The key to the elimination of deflation lies in the acceleration of innovative actions taken by private companies to produce goods and services that consumers will want to purchase, even if they have relatively higher costs.