Jan 18 (Reuters) – The Bank of Japan raised its inflation forecast on Tuesday and signaled that recent commodity price increases would intensify, the latest sign of its belief that Japan is on a sustainable path out of deflation. Read more
The central bank also revised growth forecasts for the next fiscal year upwards and offered a more optimistic view of the economy than three months ago, taking into account the recent spike in cases of the Omicron coronavirus variants, At least for the moment.
As widely expected, the BOJ left unchanged a target of -0.1% for short-term interest rates and a commitment to guide long-term rates around 0% at a two-day meeting that s ended on Tuesday.
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Here are excerpts from BOJ Governor Haruhiko Kuroda’s comments during his post-meeting press conference, which was conducted in Japanese, as translated by Reuters:
BOJ MONETARY EASING
“Consumer inflation is expected to remain around 1% through the end of the BOJ’s projection period. As such, there is no need to alter the BOJ’s monetary easing.”
“Japan has recently seen inflationary pressure intensify. This is partly due to an improvement in the output gap, reflecting a recovery in the Japanese economy. When you look at Japan’s past experience, such as in 2008 , price gains driven by rising raw material costs were temporary.”
“For inflation to become sustainable, we need to see an increase in medium to long-term inflation expectations.”
“As corporate profits rise, the labor market could tighten and lead to a moderate increase in wages. The government is also using tax reforms to encourage wage increases. There is also hope for savings to stimulate consumption These are positive factors that could encourage households to become more accommodating to price increases.”
POSITIVE ECONOMIC CYCLE
“We will maintain strong monetary easing until we see wage and price growth picking up sustainably and leading to a positive business cycle.”
NO DEBATE ON RISING INTEREST RATES
“We are not debating an interest rate hike…As the report shows, we are not yet in a situation where inflation is steadily accelerating towards the BOJ target. The members’ median forecast of the Board of Directors is inflation of around 1%. Under these conditions, we have absolutely no plans to raise rates or change our accommodative monetary policy.”
“My term as BOJ Governor ends in April 2023. But I do not intend to tie the policy normalization debate to my remaining term. We are not in a position to debate an exit or normalization of policies with inflation still around 1%.”
WEAK YEN PROMOTES ECONOMIC GROWTH
“A weak yen boosts economic growth and inflation, so there is no change in the opinion of the BOJ, it is positive for the Japanese economy. So I don’t think there is a something like a weak yen. But the impact of a weak yen is uneven for each sector.”
“Inflation in Japan will be pushed higher primarily by the dampening effect of last year’s mobile phone fee reductions and the impact of raw material costs in fiscal 2022. During In FY2023, however, inflation will be fueled more by an expected improvement in the output gap and rising inflation expectations – factors that would be more long-lasting. inflation gradually accelerate towards 2%.”
IMPACT OF THE PANDEMIC
“We will review the impact of the COVID-19 crisis and, if necessary, step up monetary stimulus. We also plan to keep interest rates at current or lower levels for the time being. We will continue to do so until inflation of 2% is reached in a stable manner.”
NO MONETARY POLICY TIGHTENING PLAN
“It is inappropriate to use monetary policy to stem temporary increases in commodity and commodity prices. I do not believe that a temporary increase in commodity costs would push consumer inflation in Japan to the above 2%. We do not intend to tighten monetary policy to respond to the temporary price increase driven by commodity costs.”
AIMING FOR WIDER INFLATION
“What we are aiming for is to achieve broader inflation accompanied by wage increases. If inflation of 2% is permanently achieved, we will obviously debate an exit plan or a normalization of policy. For l right now, there’s no prospect of that happening.”
BOJ RATE TARGETS
“Our goal is to achieve 2% inflation in a stable manner. Economic developments are important in gauging price movements. But our view on the balance of risks to the economy alone will not trigger a monetary policy change.
TOO EARLY FOR EXIT STRATEGY
“If reaching 2% inflation is in sight, the BOJ board will likely discuss an exit strategy and communicate its intention to the markets. That in itself won’t be that difficult. The problem is that, unfortunately, we have not seen inflation touch 2%. It is premature to discuss an exit strategy.”
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Reporting by Leika Kihara; Editing by Sherry Jacob-Phillips
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