BOJ's Kuroda voices confidence in hitting price target

YOKOHAMA, Japan (Reuters) - Bank of Japan Governor Haruhiko Kuroda on Friday voiced confidence that the country’s inflation rate will accelerate toward his 2 percent target as robust economic growth pushes up wages and helps heighten inflation expectations.

Bank of Japan Governor Haruhiko Kuroda speaks to media at the Asian Development Bank (ADB)'s annual general meeting in Yokohama, south of Tokyo, Japan May 4, 2017. REUTERS/Issei Kato

Kuroda conceded that inflation expectations were not well anchored in Japan, making it challenging to convince households and companies that a sustained economic recovery will eventually lead to higher inflation and wages.

But he said that once inflation rates start to accelerate significantly, that will change public perceptions of future price rises and enable the BOJ to achieve its price target.

“Since Japan’s economy is growing and will continue to grow well above its potential, the output gap will continue to improve in the coming months and years. That would strengthen pressure on wages and prices,” Kuroda told a news conference.

“It’s challenging for central banks to achieve their price stability targets in a timely manner, but that doesn’t mean we would change our 2 percent target,” he added.

In an earlier interview with CNBC, Kuroda said the BOJ will maintain its long-term interest rate target for the time being to ensure the economy is sustainably out of deflation.

“The mindset (of the Japanese public) is still quite cautious about inflation expectations. But I’m quite sure that will change with continuous accommodative monetary policy supported by fiscal policy,” Kuroda was quoted as saying in the interview.

Kuroda is in Yokohama, eastern Japan, to meet financial leaders gathering for the Asian Development Bank’s annual meetings.

After more than three years of huge asset purchases failed to accelerate inflation, the BOJ revamped its policy framework last September to one aimed at capping long-term interest rates.

Japan’s economy has shown signs of life, as exports rose the most in over two years in March and manufacturers’ confidence hit the highest since the global financial crisis a decade ago.

But core consumer prices for March rose just 0.2 percent from a year earlier, well below the BOJ’s target, a sign the Japanese central bank will lag behind its major counterparts in withdrawing monetary stimulus.

Reporting by Leika Kihara; Editing by Jacqueline Wong and Sam Holmes