BoJ can attain inflation target: O'Neill

Says Japan's central bank may need to concern itself with containing prices if it succeeds

The Bank of Japan (BoJ) can achieve its goal of two per cent inflation within two years and may need to concern itself with containing prices if it succeeds, according to Goldman Sachs Asset Management Chairman Jim O'Neill.

If the central bank is truly committed to reaching its target, then it can, London-based O'Neill said at a Goldman Sachs seminar in Tokyo on Thursday. BoJ governor Haruhiko Kuroda has pledged to do "whatever it takes" to beat deflation and plans to double the monetary base - cash in circulation and the money that financial institutions have on deposit at the central bank - within two years in pursuit of that goal.

"They've set it themselves and they've got to keep doing things to get to what is their target," O'Neill said. "If they do start to get two per cent inflation in the next two years, how do they stop it going, at least for a brief while, to quite a bit more than two per cent. That to me would be more of a valid issue than whether they will be able to do it."

The 56-year-old's confidence in Japan's central bank runs counter to skeptics from Bill Gross, who runs the world's biggest bond fund, to former BoJ Deputy Governor Kazumasa Iwata.

The Topix Index, Japan's broadest equity measure, has rallied 55 per cent since November on pledges to end deflation while the two-year rate on overnight-index swaps, used to wager on changes in the BOJ's target rate, is set for its biggest monthly jump since November 2010.

Where previous inflation targeting exercises in Japan have been "a bit of a game," this time around things are different, O'Neill said.

Goldman Sachs last week raised its outlook on Japanese shares for the fourth time this year citing the BoJ's "credible commitment" to beat deflation.

"The biggest change is that the government and the central bank are on the same page said ''let's exit deflation,''" Kathy Matsui, chief Japan strategist at Goldman Sachs, said.