Japan's pioneer of big data predicts change in BOJ's approach on prices

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) - The coronavirus pandemic will force the Bank of Japan to embrace big data as its conventional consumer price index fails to offer an accurate, real-time picture on inflation, said Tsutomu Watanabe, a leading academic on alternative data in Japan.

The BOJ pledges to achieve 2% inflation as measured by the government's consumer price index (CPI), which means its policy decisions are closely linked to fluctuations in the index.

That approach will need to change as government data are released too late to give policymakers clues on how the pandemic is affecting the economy in real-time, Watanabe told Reuters.

"The BOJ would be behind the curve on policy if it relies too heavily on data that comes out late" such as CPI, said Watanabe, a former BOJ official who is professor at the University of Tokyo's Graduate School of Economics.

"The BOJ knows its conventional approach of simply tracking CPI won't work. While they won't change the 2% target, they will start looking at a wider range of data," he said on Monday.

The BOJ has deployed years of aggressive stimulus to achieve its 2% CPI target to get the world's third-largest economy sustainably out of deflation.

The most recent CPI data was for May, when core consumer prices fell 0.2% from a year earlier. It was released on June 19.

Japan has been slow to embrace non-traditional data, such as those for credit card usage and smartphone traffic, even as a supplement to government data in policy decisions.

Watanabe, who first introduced in Japan an index tracking real-time price moves using private data, said non-traditional data will play a crucial role as long as the pandemic persists.

"It may take about two years for a vaccine to be developed and distributed widely. During that period, traditional data like gross domestic product won't be of much use," he said.

"Policymakers will have to fully rely on big data. That's already happening across the world and will only accelerate."

(Editing by Jacqueline Wong)