Business / Economy

Kuroda turns cautiously optimistic about inflation target

Kyodo

Bank of Japan Gov. Haruhiko Kuroda expressed confidence Monday that the 2 percent inflation target will be achieved around fiscal 2018, saying a pickup in oil prices and possible wage growth could help push up prices.

Kuroda, however, also warned there are downside risks to consumer prices in the country, given the uncertainties in the global economy. His warning indicates that the central bank is waiting to see what happens from Republican Donald Trump’s victory in the U.S. presidential election.

“Despite the recent weakness in price developments, the momentum toward achieving the price stability target of 2 percent seems to have been maintained,” Kuroda said in a speech at a meeting of business leaders in Nagoya.

“However, risks to both economic activity and prices are skewed to the downside, particularly those regarding overseas factors,” he said, adding the BOJ will adjust its policies if needed to attain its inflation target.

Consumer prices fell for the seventh straight month in September and were down 0.5 percent from a year earlier.

At the latest two-day policy meeting through Nov. 1, the BOJ, which had already pushed back the time frame for hitting the inflation target four times since Kuroda took office in 2013, pushed it back again to sometime in or after fiscal 2018 ending in March 2019.

The central bank has acknowledged the target won’t be reached during Kuroda’s term through April 2018. But a few factors could provide a ray of hope.

The BOJ has argued that lower crude oil prices worldwide, tepid domestic demand in the wake of the 2014 consumption tax hike and market instability has thwarted its efforts to attain the inflation goal for more than three years.

Recently, oil prices have ticked upward and domestic demand has shown signs of recovering. These factors, along with labor market improvement, are raising hopes for wage growth. A weaker yen could also help drive up consumer prices at home by boosting import prices.

In preparation for a long-term battle to stoke 2 percent inflation, the BOJ decided at its September meeting to shift its policy target to the yield curve for government bonds rather than its massive asset purchasing program.

“Almost two months have passed since the introduction of the bank’s new policy framework, and it appears to have been perceived as positive by market participants,” Kuroda said.

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