TOKYO: Bank of Japan Governor Haruhiko Kuroda voiced confidence the bank will meet its ambitious price target, seeking to dispel speculation a global oil rout will slow inflation and force it to ease again soon.
Offering a brighter view of the economy at his first news conference since Prime Minister Shinzo Abe’s landslide victory in a December 14 election, Kuroda on Friday also urged companies to boost wages and called on the premier to speed up reforms to lift Japan’s growth potential.
“For inflation to move stably at 2 percent, it’s crucial for wages to rise,” he told reporters after the BoJ’s last rate review of this year.
“Measures to boost Japan’s growth potential takes time. That’s more reason to speed up the process,” he said, urging Abe to push through growth strategies he promised to deliver.
Having just expanded stimulus seven weeks ago, the BoJ maintained its pledge of increasing base money, or cash and deposits at the bank, at an annual pace of 80 trillion yen ($674bn) through aggressive asset purchases.
Unfazed by the recent market turbulence and fragile consumer sentiment, the governor was more upbeat on the economy than last month. He said it continues to recover moderately, with the pain from a sales tax hike in April subsiding. “We’re making steady progress in shaking off the public’s deflationary mindset,” Kuroda said.
Abe is pressuring big companies, which reaped windfall profits from a weak yen, to use the money to boost wages. Some firms are paying heed, a welcome move for the BoJ which sees wage hikes as key to the success of its stimulus programme.
Kuroda stuck to his view that Japan is on track to hit the bank’s 2 percent inflation target in the year beginning in April 2015, shrugging off speculation that a dramatic slide in oil costs will weigh on consumer prices and force the BoJ to ease policy again early next year.
While oil price falls will slow inflation short-term, they are beneficial for Japan’s economy and will push up prices in the long run as companies use the money they saved from lower fuel costs to increase wages, Kuroda said.
“Inflation may not accelerate much early next year... but we need to scrutinise developments a bit longer,” he said.
A poll showed many analysts agree with the BoJ’s view on the economy, though they also expect the central bank to ease again in the second half of 2015 on expectations inflation will struggle to hit its target.
Core consumer inflation hit 0.9 percent in the year to October and data due next week is set to show it slowed to 0.7 percent in November, way below the BoJ’s 2 percent target.
The BoJ is increasingly likely to revise down its consumer inflation forecasts at a quarterly review of its projections in January, sources say, which would keep it under pressure to act again.
The central bank stunned markets by easing in October to prevent weak demand and falling oil prices from hurting inflation expectations. But consumer sentiment has slumped and a key market measurement on inflation expectations has fallen since then, exposing the limits of its aggressive stimulus.
Factory output is expected to have risen for a third straight month last month but the pace will only be moderate as inventories are still high.
“Consumer spending lacks strength and prices of items such as home appliances, which attracted large demand before a sales tax hike, remain weak,” said an economist at Shinkin Central Bank Research Institute in the survey.
“Upward pressure on energy-related prices such as gasoline and electricity has been weakening. The annual consumer inflation rate will likely continue to slow down going ahead.”
Many analysts remain doubtful that the Bank of Japan will achieve its 2 percent inflation target during the next fiscal year starting from April 2015.
Reuters
