UPDATE 3-BOJ's Kuroda says ECB action won't nudge up yen vs euro

Fri Jun 13, 2014 5:18am EDT

* BOJ revises up assessment on overseas economy

* No policy action as economic recovery on track

* Keeps view on Japan's economy, exports unchanged

* Governor Kuroda says economy "within our expectations" (Adds Kuroda quotes)

By Leika Kihara

TOKYO, June 13 (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Friday he saw no reason for the yen to strengthen against the euro, pushing back at the European Central Bank's efforts to keep euro gains in check with its latest stimulus package.

The remarks came after the BOJ kept monetary policy steady and offered a more upbeat view on overseas growth, signalling confidence the economy is on course to meet its inflation target next year without additional stimulus.

The ECB last week became the first major central bank to impose negative interest rates, or charge financial institutions for parking funds at the central bank, a move markets see as partly aimed at keeping euro gains in check.

Some in the BOJ, who have been surprised by the unusually blunt language ECB officials have been using to rein in euro rises, were relieved to see that the ECB's policy action did not lead to a sharp yen rebound against the euro.

Kuroda praised the ECB's latest moves as showing its determination to keep long-term inflation expectations well anchored, saying that he saw the risk of the entire euro-zone region slipping into deflation as low.

But the former Japanese top currency diplomat, who knows markets inside out, also warned that explicit European attempts to weaken the euro against the yen will not work much.

"Japan is steadily moving towards the 2 percent price target but we're still halfway there. We also plan to continue our stimulus programme until 2 percent inflation is stably achieved," Kuroda told a post-meeting news conference.

"I don't think there is a reason for the yen to strengthen against the euro from the ECB's stimulus package, including negative interest rates," he said, offering the most direct remark to date on the exchange-rate impact of the ECB's move.

Both the ECB and the BOJ argue that their monetary policies do not directly aim at influencing currencies. But they do prefer their currencies to weaken because that will push up prices and give their exports a competitive advantage overseas.

Kuroda's comments show the BOJ still places much emphasis on exchange rates in guiding policy, said Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch Securities.

"If the euro depreciated by 10 or 20 percent, the BOJ could not ignore this because of the implications for inflation in Japan. If it's really serious, the BOJ could consider taking some action," he said.

As widely expected, the BOJ maintained its monetary policy framework, under which it has pledged to increase base money by 60-70 trillion yen ($588-$686 billion) per year via aggressive asset purchases.

UPGRADES OVERSEAS ASSESSMENT

Under an intense burst of stimulus launched in April last year, the BOJ pledged to double base money via aggressive asset purchases to end deflation and accelerate consumer inflation to 2 percent in roughly two years.

With consumer inflation having exceeded 1 percent, Kuroda has said repeatedly that Japan is making progress toward meeting the price goal during the fiscal year beginning in April 2015.

But he has also said the BOJ is ready to ease further if risks threaten the recovery, keeping alive expectations of more stimulus on hope it will rein in any sharp rises in the yen.

Kuroda said Japan's economy was showing signs of having weathered a sales tax hike in April that had been watched by economists as a risk to the recovery.

"The economy is moving roughly within our expectations. Household spending remains solid as a trend," he said, noting there were also signs of clear improvement in job conditions and incomes.

"We expect a gentle recovery to continue," he added.

Japan logged its fastest growth in two years in the first quarter thanks to surprisingly strong capital spending, in a fresh sign that the economy is in better shape to weather the hit from the April tax hike.

Sluggish exports remain a soft spot for the economy, although BOJ officials see overseas headwinds receding as China's exports rebound and as the U.S. economy recovers from a severe winter.

"Overseas economies, mainly advanced economies, are recovering, although lackluster performances are seen in some areas," the BOJ said in a statement. That was a brighter view than last month, when it said global growth was "starting to recover" albeit with lacklustre performances in some areas.

The central bank also left unchanged its assessment that Japan's economy continues to recover moderately as a trend, while exports have been "more or less flat."

Kuroda's optimism has led market players to scale back bets of further monetary easing this year, though many economists remain sceptical that prices will continue to pick up. ($1 = 102.0800 Japanese Yen) (Additional reporting by Stanley White, Tetsushi Kajimoto and Kaori Kaneko; Editing by Kim Coghill and Kevin Krolicki)

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