TOKYO Bank of Japan Governor Haruhiko Kuroda said there was no need for additional stimulus to escape years of debilating deflation, expressing confidence on Tuesday the world's third-largest economy can ride out the impact of a sales tax rise.
Kuroda dismissed market expectations the BOJ could ease again soon to soften the blow from the tax rise that took effect of April 1, stressing a short-term disruption was unlikely to derail a steady recovery already underway.
Investors pushed the yen to its highest against the dollar in 10 days as they pared back bets of the central bank increasing its existing stimulus.
"As always, I remain convinced about the prospect for achieving our price target," Kuroda said after the BOJ's widely expected decision to make no changes to its massive stimulus.
Robust demand and an expected pickup in exports will help the economy rebound from the post-tax hike slump around July-September, he told reporters after the policy review.
"Japan is making steady progress towards 2 percent inflation. I don't think there is a need to take additional measures now."
At least three times during the media briefing, Kuroda said he saw no need for immediate action as improvements in the economy were creating more jobs and pushing up prices, though added the BOJ had policy options if it needed to act again.
"People in the BOJ probably have the impression that market participants are counting too much on additional easing," said Masayuki Kichikawa, chief economist at Bank of America Merrill Lynch in Tokyo.
"Kuroda is asking market participants to be a little bit more neutral. If things go well, the BOJ can afford to wait for six months to see if things evolve in line with its expectations."
The BOJ launched an intense burst of stimulus last April, when it pledged to lift inflation to 2 percent in roughly two years to beat nearly two decades of deflation.
As it has done every meeting since, the BOJ on Tuesday maintained the commitment to increase base money, its key policy gauge, at an annual pace of 60-70 trillion yen ($580-$675 billion).
A run of recent soft data, such as last week's "tankan" survey that showed companies see a worse impact on consumers from the April sales tax hike than from the previous increase in 1997, has cast doubt on how long Prime Minister Shinzo Abe's reflationary policies can sustain the recovery.
That has kept alive expectations the BOJ could act again soon, with most analysts betting on further easing by July.
But Kuroda took a brighter view of the tankan, saying companies see a steady rise in prices and their price expectations were higher than many economists had forecast.
He also said Japan's output gap may be almost closed, suggesting a steady recovery has removed slack in the economy and paved the way for wages and inflation to accelerate.
The BOJ's upbeat tone on Tuesday lays the groundwork for the its semi-annual outlook on the economy and prices due April 30.
Many analysts expect the BOJ to cut its economic growth estimate of 2.7 percent for the fiscal year that ended in March, taking into account a downward revision in gross domestic product growth in the Oct-Dec quarter.
But the central bank is likely to maintain its bullish price forecasts and predict consumer inflation accelerating towards 2 percent in coming years, on a view that brisker economic conditions will push up wages and prices.
($1 = 103.5750 Japanese Yen)
(Additional reporting by Kaori Kaneko and Dominic Lau; Editing by Eric Meijer, John Mair and William Mallard)