BOJ Governor Upbeat On Economy and Inflation Goal

BOJ Governor Upbeat On Economy and Inflation Goal

Friday, the Bank of Japan (BOJ) opted to maintain its ultra easy monetary policy and keep its assessment of the economy as the central bank believes the nation will emerge from a recent downturn and its inflationary efforts will begin to show dividends.

Owing to the recent Crude Oil glut that has kept global prices pegged at a low rate, the inflation rate Japan has been hovering at just above the Zero mark, although the bank’s policy board at the conclusion of its 2-day meeting said it still expects inflation to hit its 2% inflation target within 2 years.

But some analysts, as has been the case since the BOJ announced its lofty inflation target, believe that bank may well be hard- pushed to achieve its inflation target within its self-imposed timeframe.

“Unless inflation gains a bit more momentum, it’ll get harder for the BOJ to reach its goal within its timeframe,” said former BOJ official Maiko Noguchi, who currently works at Daiwa Securities Group Inc. as an economist.

However, despite a slowdown in output and exports, due to falling demand and consumer spending at home, as well as slumping demand from some overseas markets, the board opted to maintain its Key policy of increasing base money at an annual pace of about JPY 80-T through massive asset purchases.

Following the 2-day policy board meeting, BOJ Governor Haruhiko Kuroda told a press briefing that Crude Oil moves could be Key to any changes in the bank’s price targets and remained confident that inflation would accelerate later this year.

“Consumer inflation will hover around zero for the time being due to the effect or energy costs. But it is likely to accelerate later this fiscal year and head toward 2 percent as the effect of oil prices dissipates,” said Mr. Kuroda.

“The timing for achieving our price target may change somewhat depending on future oil price moves. But what’s important in terms of guiding monetary policy is the broad trend of inflation,” he said, adding “if oil price moves affect inflation expectations and the underlying trend of inflation, we may consider adjusting policy.”

“For now, that is not the case. We (BOJ) will carefully watch Crude Oil price moves and scrutinize how they affect the broad trend of inflation,” the BOJ boss added.

While noting that exports to a degree had experiences some ” fluctuations” as well as production in general, the bank maintained its view that these sectors were likely to continue to pick up, noting that consumption itself had been “resilient.”

Mr. Kuroda himself said he believed the softness in exports was likely to be temporary and would improve with the US economy and as demand in Asia normalized.

“The softness in exports and output is likely temporary. It’s true the temporary weakness in US growth in Q-1, as well as sluggish Asian demand, weighed on exports. But we expect exports to pick up ahead as overseas economies recover and add to support from a weak Yen,” said Mr. Kuroda.

Overall the bank maintained its assessment that the domestic economy has””continued to recover moderately,” and the outlook for the economy was expected to “continue recovering moderately” despite some risks from a slowdown in the pace of recovery in the US economy and inconsistencies in some overseas economies.

“It’s true China’s economic growth is slowing and other emerging market economies are also showing weak growth. But we expect overseas economies to recover moderately as strength in advanced economies broadens. As such, we expect the softness in exports and output to be temporary,” he said.

Reiterating the bank’s view that consumer spending had been restrained of late, due to production and export levels impacting businesses’ bottom lines and hence salaries, the bank’s chief said Friday that as a trend, sentiment is recovering overall and will remain resilient, as it has done even to unforeseen events such as tropical storms and typhoons, which inhibit spending, as well as unseasonably hot weather, which has the same effect.

“Household sentiment continues to recover as a trend. Consumer spending is likely to remain resilient after emerging from a temporary hit from bad weather,” the governor said.

“It’s true consumer spending has hovered on a weak note. But consumption will become more resilient as base salary rises and Summer bonuses are paid, underscoring improvements in household income and job conditions,” he noted.

By Hou Quing

Paul Ebeling, Editor

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