The Bank of Japan will continue to employ every possible measure to achieve its goal of 2 percent inflation, BOJ Gov. Haruhiko Kuroda said Wednesday.
The central bank “will do whatever it can to achieve the price stability target at the earliest possible time,” Kuroda said at a seminar, after the BOJ surprised financial markets last week by expanding its aggressive monetary easing policy.
“If downside risks to prices become substantial, it will be a natural and logical move to take additional measures,” he said, in reference to the downward pressures on prices from weak private consumption following the consumption tax hike in April, as well as from recent sharp falls in oil prices.
“In this sense, the measures decided last week represent nothing less than the bank’s unwavering commitment,” Kuroda said.
On Friday, the BOJ expanded its “quantitative and qualitative easing,” saying it will purchase more government bonds and investment trusts from banks and other financial institutions to encourage them to lend more to businesses. It is accelerating the provision of funds to the economy to lift the inflation rate to 2 percent by sometime next year.
Kuroda said Wednesday the aggressive easing, introduced in April 2013, has been helping address a “deflationary mindset” in Japan, with falling prices and stagnant growth over the past nearly two decades.
“Such progress should not be stopped now. In order to completely overcome the chronic disease of deflation, the medicine should be taken until the end,” Kuroda said. “A half-baked medical treatment will only worsen the symptoms.”
Kuroda also stressed the BOJ still aims to achieve the inflation goal within around two years since the introduction of the policy, although many in the market believe the widely perceived deadline of next spring will not be met.
The core consumer price index, which excludes fresh foods, only rose 1.0 percent in September from a year earlier, without the direct effects of the consumption tax hike. Inflation has been slowing in recent months.
“The bank’s principle of achieving the price stability target of 2 percent at the earliest possible time, within a time horizon of about 2 years, has not changed,” Kuroda said.
On the depreciation of the yen, which has been accelerated by the BOJ’s additional easing, Kuroda said it is positive for the Japanese economy if the currency rate reflects economic fundamentals.
While noting the weaker yen normally helps increase exports and improve the earnings of globally-operating firms when their profits are repatriated, Kuroda also said it lifts import prices and weighs on the real income of households.
Such impacts “differ depending on economic entities” and take time to emerge, he said. “We need to keep paying attention.”