Japan's likely next prime minister, Sanae Takaichi, said on Saturday the government and central bank must work closely to ensure the economy achieves demand-driven inflation backed by rising wages and corporate profits.
While the world's fourth-biggest economy is already experiencing inflation, it is premature to declare it fully out of stagnation as recent price rises have been driven by high raw material costs, said Takaichi, set to be Japan's first female premier after winning a ruling party leadership race.
"Japan may no longer be in deflation. But its economy is still at a critical phase," with companies likely to feel the hit from higher U.S. tariffs, she told a press conference after winning the Liberal Democratic Party presidency.
"We can't leave cost-push inflation unattended. It's too early to be complacent" about the risk of a return to deflation, she said.
"What would be best would be to achieve demand-driven inflation, where wages would rise and drive up demand, which in turn causes moderate price rises that boost corporate profits."
Takaichi also said she would look into whether the government should revise a joint statement with the BOJ, first agreed upon in 2013, that focuses on measures to beat deflation.
"The government and BOJ must move in lockstep and cooperate with each other in guiding economic policy," she said.
