Japan’s Economy Growing, Inflation Goal In View
Bank of Japan (BOJ) Governor Haruhiko Kuroda said Friday that while some Southside risks are facing the nation’s economy the bank will continue with its large-scale monetary easing policy and adhere to its reflationary view that the price stability target of 2% can be achieved through its policy.
In a speech given at a meeting held by the Research Institute of Japan in Tokyo, the central bank chief maintained his optimistic view that despite sluggish exports and production here owing to a slowdown in overseas economies affecting prices, compounded by the effects of declining oil prices, Japan’s economic fundamentals remained sound.
“The fundamentals of Japan’s economy are sound and the environment surrounding firms and households has significantly improved compared to some years ago. Moreover, the underlying trend in inflation has been improving steadily,” Mr. Kuroda said.
“Quantitative and qualitative monetary easing (QQE), which the bank introduced in April 2013, has been exerting its intended effects toward overcoming deflation,” the BOJ chief said.
He added that the bank will continue with its QQE measures and its ultra-accommodative financial conditions.
“In this circumstance, firms and households are expected to be more proactive in economic activity, Japan’s economy is likely to continue growing at a pace above its potential, and the price stability target of 2% certainly would be achieved,” the BOJ chief maintained.
Regarding the overseas economic backdrop, Kuroda highlighted the October 2015 World Economic Outlook (WEO) published by the IMF and noted that global growth for this year is projected to decline compared to Y 2014, but would begin to accelerate towards Y 2016.
And while advanced economies have seen a firm recovery trend, particularly the United States, to the point where the Fed is looking likely to hike its Key interest rate in the near future, and emerging economies’ slowdown may continue a while longer, Mr. Kuroda said that monetary and fiscal policy being proactively carried out as stimulus measures in China, for example, will ensure the world’s 2nd-largest economy follows a stable growth path.
He also noted that smaller emerging economies would also likely pull out of their deceleration phase and, on balance, these situations were seen as favorable to the positive development of Japan’s corporate sector, as well as employment, income and consumer sentiment, and the wider outlook for broad scale economic growth.
“As a result, the employment and income situation has been improving steadily, and consumer sentiment, which deteriorated after the consumption tax hike in 2014, has been on an improving trend on the whole,” said Mr. Kuroda, adding, “With a virtuous cycle from income to spending in both the corporate and household sectors, Japan’s economy through F-Y 2016 is likely to continue growing at a pace above its potential, which is currently estimated to be around 0.5% or lower. Thereafter, through F-Y 2017, the economy is projected to maintain its positive growth, although with a slowing in its pace to around a level somewhat below the potential growth rate.”
The BOJ chief went on to state that underlying inflation trends had steadily improved, as per the bank’s and the finance ministry’s arduous objective to rescue the nation from decades of deflationary pressure.
“The underlying trend in inflation has steadily improved, excluding the effects of the decline in energy prices. For example, the Y-Y rate of change in the CPI for all items less fresh food and energy has been positive for 24 consecutive months since October 2013, increasing to 1.2% this September,” he explained.
“Looking ahead, as the Bank pursues QQE and the observed inflation rate rises, medium- to long-term inflation expectations are also likely to follow an increasing trend and gradually converge to around 2 percent,” Mr. Kuroda said, although remained somewhat equivocal on the exact timing the inflation goal will be reached, as the bank has pushed the target back a number of times, owing to waning consumer demand following the April tax hike last year, the downside effects of the global Crude Oil glut and the inevitable impact of a 2nd upcoming sales tax hike.
“Although the timing of reaching around 2% depends on developments in Crude Oil prices, it is projected to be around 2-H of F-Y 2016, assuming that Crude Oil prices will rise moderately from the recent level. As shown in the October 2015 Outlook Report, the projected rates of increase in the CPI for F-Ys 2015, 2016, and 2017 are 0.1% and 1.4%, and, excluding the direct effects of the scheduled consumption tax hike, 1.8%, respectively,” Mr. Kuroda said.
“Compared to the projections in the July 2015 interim assessment, the projected rates of increase in the CPI for F-Ys 2015 and 2016 are lower due mainly to the effects of the decline in Crude Oil prices, but the projection for F-Y 2017 is more or less unchanged,” the central bank’s governor said.
As per Mr. Kuroda’s long-standing, proactive mantra, he again maintained Friday that should domestic or external factors present downside risks significant enough to shake Japan’s economy and threaten to derail the central bank’s inflation goal, he stood poised to unleash further easing measures to prop up the economy and ensure the bank’s reflation initiative comes to fruition.
“The bank will make the most appropriate policy decisions by scrutinizing the current situation of economic activity and prices and their outlook, various risk factors, and developments in financial and capital markets at every monetary policy meeting,” he said. “Let me reiterate that the bank will make adjustments without hesitation if judged as necessary to achieve the price stability target of 2 percent at the earliest possible time,” Mr. Kuroda concluded.
By Hou Qiang
Paul Ebeling, Editor
HeffX-LTN
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