The nation's recent steady economic growth will not immediately lead to a tighter monetary grip by the Bank of Japan due to the inherent time lag between a recovery and a turnaround in deflation, BOJ Gov. Toshihiko Fukui said Tuesday.
The BOJ's policy-setting panel has decided to keep its ultraloose monetary stance unchanged to help sustain the recovery trend.
"Even though the economic recovery is gathering momentum, it will take more time than in the past to see a rise in prices," he told a news conference after the two-day Policy Board meeting.
He said that under these circumstances, the central bank will maintain its so-called quantitative credit-easing policy until Japan's core consumer prices -- a key gauge of the BOJ's monetary policy -- rise steadily.
A BOJ report released the same day says consumer prices will continue to edge lower in the current fiscal year, because a reduction in labor costs will continue despite an improvement in corporate performance. This will limit a rise in personal spending, it says.
In the report, the central bank predicts a rise in corporate prices during fiscal 2004, reflecting a price rise in raw materials.
At the Policy Board meeting, members agreed that the central bank will continuously inject liquidity into the financial system to shore up the recovery trend, the strongest seen since the economic bubble of the late 1980s.
The nine-member board decided unanimously to maintain the target for the outstanding balance of banks' deposits at the BOJ to a range between 30 trillion yen and 35 trillion yen.
If the market faces any risk of instability, the BOJ will pump greater liquidity into the financial system beyond its target, the central bank said.
