April 10, 2014 / 3:06 AM / in 4 years

UPDATE 1-BOJ's Miyao: Consumer spending will drive up price pressures

* Miyao bullish on consumer-driven economy

* Miyao echoes Kuroda’s confidence in outlook

* Some economists still worry about inflation target

By Stanley White

TOKYO, April 10 (Reuters) - Bank of Japan board member Ryuzo Miyao said on Thursday gains in consumer spending are being driven by improving underlying demand which in turn should increase upward pressure on prices.

“High stock prices are not the only reason that consumer spending is recovering,” Miyao said in the text of speech to business leaders in Okayama, western Japan.

“A mechanism is in place that is stimulating underlying demand. This is boosting corporate earnings and leading to improvements in labour and wages.”

Miyao said Japan’s economy could continue to grow above its potential rate after the temporary shock from a sales tax hike on April 1, echoing equally bullish comments that BOJ Governor Haruhiko Kuroda made earlier this week, which could cause some economists to scale down their expectations that the central bank will ease policy further.

The economy and consumer prices are moving broadly in line with the BOJ’s forecasts, Miyao said, which would support Kuroda’s argument that additional easing is not needed now.

Miyao expressed concerns about downside risks to the economy last year, but in the speech on Thursday he said risks are roughly balanced, suggesting he has turned more optimistic.

The BOJ voted unanimously on Tuesday to maintain its pledge of increasing base money, its key policy gauge, at an annual pace of 60 trillion to 70 trillion yen ($582-679 billion).

Speaking after the policy decision, Kuroda said there was no need for additional stimulus to escape years of debilitating deflation, which pushed the yen higher versus the dollar.

The BOJ has stood pat since launching an intense burst of stimulus last April, when it pledged to accelerate inflation to 2 percent in roughly two years via aggressive asset purchases in a country mired in deflation for 15 years.

The BOJ’s 2 price target does have a two-year timeframe, but the central bank has also committed to keep policy easy as long as needed to reach the price target in a stable manner.

Miyao said that this makes the BOJ’s monetary easing open-ended and this can help keep inflation expectations on track.

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 doubt 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. (Editing by Eric Meijer)

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