Bank of Japan likely to maintain easing policy, chief says

Kyodo

Bank of Japan Gov. Haruhiko Kuroda indicated the central bank will keep intact its current monetary easing policy in 2014 with prospects that the economy will continue to recover despite possible adverse impact from the consumption tax hike in April.

In a recent interview, the BOJ chief poured cold water on the view in financial markets that the bank is likely to further ease its monetary policy as early as the first half of the year.

“As long as the economy moves as expected, we will continue with the current policy,” he said.

On the possibility of additional easing, Kuroda said, “We will make adjustments as appropriate to achieve the price stability target” by examining economic data each month.

“Basically, I believe that the economy will grow steadily” despite some ups and downs generated by last-minute and weakened demand before and after the tax hike, Kuroda said, referring to the BOJ’s forecast for 1.5 percent growth in the real economy in fiscal 2014, which starts April 1.

Kuroda said present conditions differ considerably compared with 1997, when the consumption tax was increased to the current 5 percent from 3 percent, as financial institutions are now robust and emerging economies are experiencing relatively high growth, although the pace has slowed to some extent.

“Consumer spending and housing investments are resilient recently,” Kuroda said, adding that consumption is likely to further strengthen if incomes increase. “We hope that wages will be increased, including regular pay,” as prices are likely to rise in line with wages.

Kuroda noted that growth in Japan’s exports has been weaker than projected in April 2013, when the BOJ introduced large-scale monetary easing steps, as European and emerging economies have been weak.

But they are likely to recover gradually due to improvement in the global economy, which is expected to grow at a faster pace led by the United States and Europe, he added.

“There has been clear improvement in the U.S. economy when compared to one and two months before,” he said, adding that the European economy has hit bottom and is expected to start recovering. “I do not believe that downside risk is so large.”

To beat deflation, the BOJ vowed in April 2013 to attain an inflation target of 2 percent in about two years with its monetary easing steps centering on doubling the monetary base and purchases of government bonds.