Japan's economic minister signals low inflation

Japan's Minister of State for Economic and Fiscal Policy paved the way on Tuesday for the country's central bank to alter its inflation target amid the ongoing commodities rout.

Akira Amari made the comments after the Japanese government agreed to a £18.1bn stimulus package and a draft budget for the year of £534.8bn, with politicians hoping their plans could kick-start the flagging economy.

He said the government needed to see the economy move on from its period of deflation before it increased sales tax as planned in 2017. The comments led to speculation the government was looking to move away from fiscal tightening.

Amari cited the Japanese government's new economic forecasts showing it expected consumer prices to increase 1.2% in 2016-17.

"If consumer prices were rising more than 1.5% then I don't think you could complain when talking about the price target", Amari said.

Amari's comments put a damper on the Bank of Japan's controversial easing programme and its increasingly unfeasible targets.

The central bank launched its quantitative easing policy in April 2013, with self-set targets to lift consumer inflation to 2% within two years.

But the bank was forced to push back the target timeframe three times since then due to the falling oil prices and a lack of domestic consumer confidence.

At its last announcement, the Bank of Japan said it was looking at meeting the goal in the second half of the 2016-17 financial year, but many analysts believe this was now unlikely.

After this morning's announcement from Amari, some local economists were seeing it as a signal from the National Diet that the bank could soften its stance.

"Amari's comments will have a big impact because this will lessen expectations for quantitative easing. The message from the government is that the Bank of Japan doesn't have to try too hard," said Norio Myagawa, senior economist at Mizuho Securities.

Any expansion of Japan's easing programme had been met with criticism from some economists, who said the debt purchases were already harming bond market liquidity.

Japan's government remained scheduled to raise national sales tax from eight to 10% in 2017, as part of a cross-party agreement to secure a larger welfare budget.