Japanese government advisors: Sustainable growth is more important than reaching 2% inflation

Economic advisors called on the Japanese government to give priority to enhancing economic growth and raising real incomes and productivity, stressing that achieving the target inflation rate of 2 percent does not represent an end in itself, and is not sufficient to ensure the economy emerges sustainably from the spiral of deflation that has lasted for decades.

The call came on Wednesday after the Bank of Japan announced last month that it had succeeded in achieving the inflation target, after a battle that lasted for about 14 years, at a time when families are still facing pressure on their purchasing power, despite the gradual improvement in price indicators.

Four private sector experts presented these recommendations to the Fiscal Economic Policy Council - the highest economic advisory body in the Japanese government - which is chaired by Prime Minister Sanae Takaichi and includes the Minister of Finance and the Governor of the Bank of Japan.

Experts confirmed that the Japanese economy has made steady progress in moving away from chronic deflation, but this transformation has not yet been adequately reflected in private consumption or real household incomes.

They pointed out that long-term growth expectations have not improved to the extent required, which raises questions about the economy's ability to maintain positive momentum without relying on rising prices alone.

The advisors said in their memorandum that the most important thing is not to treat inflation as the ultimate goal, but rather to build a growth-led economy in which sustainable increases in real incomes and productivity are achieved.

This vision reflects a shift in Japanese economic policy priorities, from focusing on ending the decline in prices to ensuring that their rise is accompanied by an actual improvement in living standards.

If prices rise faster than wages, achieving the inflation target may coincide with a decline in purchasing power, which limits the ability of domestic consumption to support growth.

Takaichi stresses the priority of household income: Prime Minister Sanae Takaichi adopted a similar position in her closing speech during the Council meeting, stressing that the primary goal of economic policies is to enable citizens to feel the benefits of growth through increased incomes and improved productivity.

She said that the government will continue close cooperation with the Bank of Japan, based on the existing joint agreement between them, with each party committing to its responsibilities, to achieve price stability and sustainable economic growth.

These statements gain importance in light of the ongoing debate regarding the pace of raising interest rates, after the central bank began reducing its accommodative monetary policy, to confront the risks of continued inflationary pressures.

The Bank of Japan has indicated the need to continue raising interest rates to prevent core inflation from exceeding the 2 percent level in a sustainable manner, while the government stresses the importance of taking into account the conditions of families and companies when determining the course of economic policy.

Improving prices do not settle deflation battle: Data showed Japan's core CPI rose 2.1 percent year-on-year in September, exceeding the Bank of Japan's target for the first time in nine months.

Despite this development, the government did not officially announce the end of the deflation phase, stressing the need for clearer evidence confirming that the economy will not return to a long period of low prices.

This discrepancy highlights a difference in evaluation angle between the central bank, which focuses on the sustainability of inflation at the target level, and the government, which also looks at the development of wages, consumption, and productive capacity.

Consultants believe that achieving a balance between these goals requires continuous coordination between fiscal and monetary policy, especially with the persistence of external risks that may affect growth and prices.

Energy risks, markets, and artificial intelligence: Experts have identified a number of factors that require careful monitoring during the next stage, including the volatility of energy prices, financial market conditions, and investment trends related to artificial intelligence.

They called on decision makers to be flexible in responding to these changes, to ensure the maintenance of a stable macroeconomic environment.

Energy prices are of particular importance to the Japanese economy, given their direct impact on production costs and consumer spending, while financial market fluctuations may be reflected in companies’ confidence and investment decisions.

As for investments in artificial intelligence, they represent an opportunity to enhance productivity, but they also carry a degree of uncertainty about the sustainability of demand and expected economic returns.

Members of the Council from the private sector stressed the importance of exchanging assessments between the government and the Bank of Japan regarding economic conditions and price trends, to ensure achieving monetary stability that does not come at the expense of growth.

Testing the next stage: These recommendations put the Japanese government before a challenge that goes beyond the central bank’s success in reaching the target inflation rate, which is to transform the nominal improvement in prices into real gains in wages and productivity.

It also confirms that a sustainable exit from deflation does not depend on interest rates alone, but rather requires an economy capable of generating long-term growth and improving the standard of living of families.

While the Bank of Japan continues to assess inflation risks and the path to monetary tightening, the government's ability to support real income and stimulate consumption will remain a key criterion for judging the success of Japan's economic transformation.

Turkey intends to invest about $300 billion by 2040, as part of its plan for transformation in the energy sector and enhancing its production capabilities, in addition to signing a strategy for cooperation with the OPEC Fund for International Development for a period of 3 years that includes broad fields, from health and agriculture to the private sector and green transformation.

Turkish Minister of Energy and Natural Resources Alp Arslan Bayraktar said, during his participation in a high-level event between Turkey and the International Renewable Energy Agency, on the global pledge for geothermal energy within the framework of the Conference of the Parties to the United Nations Framework Convention COP 31 held in Antalya, that the steps to achieve the global goal of geothermal energy for the year 2050 were reviewed.

He added that this goal is to increase global geothermal energy supplies twelvefold by 2050, with the global installed capacity of geothermal energy rising from about 16 gigawatts currently to 193 gigawatts, which sets a new standard for ambition in the field of energy transition.

Turkish energy plan: Bayraktar pointed out that Turkey ranked fourth in the world, with an installed geothermal energy capacity of 1.8 gigawatts, and we are determined to continue developing our capabilities in the field of geothermal energy, which we employ in a wide range of applications, starting from electricity generation and central heating to greenhouse agriculture and thermal tourism.

He added that within the framework of our national energy vision until 2040, we aim to reach about 6 gigawatts of combined installed capacity of geothermal energy and biomass, and we can transform this enormous latent potential into greater energy production, safer energy supplies, and stronger economies, and we call on all our partners to join us in achieving the 2050 goal.

Bayraktar said that the world seeks to reduce emissions and achieve climate goals, in parallel with ensuring economic growth and energy security, pointing out that energy security represents part of national security, and a balance must be achieved between switching to clean energy sources and meeting the growing energy needs.

He stated that Türkiye intends to invest about 300 billion dollars by 2040, as part of its plan to transform the energy sector and enhance its production capabilities.

He explained that the National Energy Plan 2040 aims to increase the installed capacity of electricity generation in Turkey from 128 gigawatts to 281 gigawatts, including 175 gigawatts of wind and solar energy, and to increase the share of renewable energy from 63 to 77 percent, in addition to developing a capacity to generate electricity from nuclear energy amounting to 10 gigawatts.

Bayrakdar pointed out that the plan includes providing a capacity to store electricity with batteries amounting to 140 gigawatts per hour, and raising the capacity of electrical interconnection with other countries to 15 gigawatts, explaining that improving energy efficiency and expanding the use of electricity will contribute to achieving savings worth $240 billion by the year 2040.

He stressed that implementing transformation plans in the energy sector requires strong partnerships, innovative technologies and a stable investment environment, and that the next stage must focus on transforming climate goals and pledges into practical steps, and strengthening international cooperation to ensure energy security and the sustainability of its supplies.

Cooperation with the OPEC Fund for International Development: On the other hand, the Turkish Minister of Treasury and Finance, Mehmet Simsek, discussed with the head of the OPEC Fund for International Development, Abdul Hamid Al-Khalifa, a cooperation strategy between Turkey and the Fund for a period of 3 years.

During a meeting with Simsik on the sidelines of the COP 31 conference, Al-Khalifa proposed signing a country cooperation strategy between the Fund and Turkey for a period of 3 years, in addition to a framework agreement with the aim of increasing the size of private sector projects in Türkiye.

According to a statement by the Turkish Ministry of Treasury and Finance about the meeting, Simsek stressed that cooperation with the OPEC Fund extends to broad areas, from health and agriculture to the private sector and green transformation.

He said that the Fund’s support for rebuilding hospitals in the area of ​​the Kahramanmaras earthquake that occurred on February 6, 2023 in southern Turkey, and for agricultural facilities contributed significantly to the region’s recovery, and that the financing provided through the Turkish Development and Investment Bank and the Turkish Industrial Development Bank supports private sector investments and the green transformation.

Simsek touched on the areas in which Türkiye wishes to intensify cooperation, noting that green and digital transformation occupy a pivotal position in the structural transformation path of the Turkish economic program.

He stressed the importance of directing the OPEC Fund's resources towards private sector investments in these two areas, and also pointed out the need to support infrastructure investments that enhance connectivity, especially transport and logistics projects aimed at improving the connection of industrial areas with ports.

Simsek welcomed the OPEC Fund's contribution of $250 million to the North Istanbul railway project, which costs $6.75 billion, which will be implemented with joint financing from 7 international financial institutions.

The project aims to accelerate rail transport between cities and strengthen the middle corridor to Europe, and Türkiye has signed a loan agreement with the OPEC Fund regarding it, while the necessary procedures for its entry into force continue.

The OPEC Fund for International Development, which was established in 1976 and is headquartered in Vienna, has become an active partner in Turkey’s development in the fields of health, agriculture, green transformation, and transportation in recent years. In 2024, it provided financing worth $20 million for the emergency hospital project after the 2023 earthquake. It also provided a loan worth $50 million to the Turkish Development and Investment Bank, and in 2025 provided a loan worth 50 million euros to the Turkish Industrial Development Bank.

Chinese stocks and Hong Kong stocks fell during trading on Wednesday, under the pressure of renewed concerns about rising global interest rates, after US inflation data reinforced expectations that the Federal Reserve would continue monetary tightening, at a time when measures to support local markets tried to limit losses.

In the currency market, the Chinese yuan maintained its relative stability against the dollar, despite the central bank adjusting its reference rate to the weakest level since late last October.

The Shanghai Composite Index fell 0.2 percent to 3,654.95 points by the mid-session break, while the CSI 300 blue-chip index fell 0.3 percent.

In Hong Kong, the Hang Seng Index fell 0.8 percent to 24,352.69 points, while the Hang Seng Technology Index fell 1.4 percent, with investors remaining cautious towards growth stocks sensitive to interest rate changes.

Despite the downward trend in major indices, some technology stocks achieved gains, supported by continued interest in companies related to artificial intelligence and communications infrastructure.

The Chainext startup index rose 1 percent, while the technology-focused Star 50 index stabilized near its previous levels.

The communications sector topped the list of gainers, after the CSI 5G Communications Index rose by 3 percent during morning trading, and Zhongji Innolight Company shares rose by 8.3 percent.

US inflation brings back interest concerns: Asian markets came under pressure after the US consumer inflation reading came higher than expectations, coinciding with hawkish statements from Federal Reserve officials.

These developments have prompted investors to increase their bets on raising US interest rates next December, leading to a rise in global bond yields and a strengthening of the dollar.

Rising US yields and a stronger US currency are weighing on valuations of Chinese yuan-denominated stocks, Nanhua Futures analysts said.

Energy market fluctuations increased uncertainty, as oil prices rose on Wednesday after touching their lowest levels in two months during the previous session, amid varying expectations between the possibilities of calming the war with Iran and fears of continued attacks on ships in the Strait of Hormuz.

The yuan stabilizes despite the strength of the dollar: In the exchange market, the Chinese yuan recorded limited movements against the dollar, with investors balancing between the strength of the US currency and the signals issued by the People's Bank of China.

The yuan was trading in the local market at about 6.6746 to the dollar, up by 0.09 percent, while its price in foreign transactions reached about 6.6736 to the dollar.

Before the market opened, the central bank set the daily reference rate at 6.7191 yuan to the dollar, the weakest level since October 22, and 336 points less strong than Reuters estimates.

Markets are awaiting the Fed’s decision: Nanhua Futures analysts believe that the decline in consensus regarding the continued appreciation of the yuan has pushed the dollar exchange rate against the Chinese currency to move within a narrow range.

In the American markets, the Fed Watch tool, affiliated with the CME Group, showed that traders are 91.9 percent likely to raise interest rates by 25 basis points next month, compared to a 9.1 percent probability of an increase of 50 basis points.

These expectations reflect a shift towards a tighter US monetary policy, which may increase pressure on capital flows and asset valuations in emerging markets.