MILAN Aug 25 Bank of Japan Governor Haruhiko
Kuroda does not expect the euro area to slip into deflation but
is confident the European Central Bank will act to stave off
such a threat should it materialise, an Italian newspaper quoted
him as saying.
Kuroda, in an interview with Corriere della Sera, said that
his main worry was the Ukraine crisis, which has strained the
West's relations with Russia and triggered trade sanctions that
are hurting already-fragile economies in Europe and Russia.
The currency bloc, however, is unlikely to fall into a
spiral of falling prices as long-term inflation expectations are
still positive and the region's economy is gradually recovering,
albeit at a very slow pace, Kuroda said in the interview,
published on Monday.
"That said, I'm convinced that (ECB President) Mario Draghi
will do all that is necessary to prevent such a danger if and
when there will be a serious risk of deflation in Europe," he
Euro zone inflation was 0.4 percent in July, the weakest
level since October 2009 and well below the ECB's target of
below but close to 2 percent.
Easing inflation and a sluggish economy have raised concerns
that the euro zone risks slipping into the sort of deflationary
spiral of falling wages and demand that held back Japan's
economy for more than a decade.
In his boldest comments to date, Draghi said on Friday that
the ECB would use all available tools against too-low inflation
if a package of measures adopted in June failed to boost
Kuroda said Japan's experience proved how damaging deflation
was and added the Bank of Japan (BoJ) would extend its
quantitative easing programme even beyond the fiscal year
starting in April 2015 if inflation failed to reach a 2 percent
target by then.
"With Japan's inflation at 1.3 percent today, we're half-way
there," Kuroda said.
The BoJ deployed a large-scale monetary stimulus in April,
pledging to double its money base through asset purchases.
Kuroda said the yen had weakened since then but was still
too strong against the dollar and the euro compared to 2007
He said Japan's economy was recovering in the current
quarter after a slump in April-June driven by a sales tax
increase in April, which pushed consumers to bring forward
purchases ahead of the tax rise.
"Consumption is back to normal levels now and for the
July-September quarter we expect a recovery in GDP. So the
government will go ahead with a new sales tax increase in
(Reporting by Valentina Za; Editing by Susan Fenton)