BOJ's Kuroda warns of renewed constraints on Japan economy from pandemic

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda warned that economic activity could be constrained “significantly” again if strict public health measures are reinstated to prevent a further spread of the coronavirus pandemic.

FILE PHOTO: Bank of Japan Governor Haruhiko Kuroda attends a news conference in Tokyo, Japan March 16, 2020, in this photo released by Kyodo. Mandatory credit Kyodo/via REUTERS

But he said that Japan was not slipping into deflation and that the central bank would continue with its efforts to achieve its elusive 2% inflation target.

“We’re not in deflation, in the sense of sustained periods of price declines. It certainly took more time than we hoped for, but I’m sure we will achieve the target,” Kuroda told an online seminar hosted by Columbia University on Wednesday.

Kuroda reiterated the BOJ’s readiness to ramp up monetary stimulus “without hesitation” if needed to combat the hit to the economy from the pandemic.

“Despite extremely high uncertainties, the Japanese and overseas economies are likely to improve gradually from the second half of this year,” Kuroda said.

“But the pace of improvement is expected to be only moderate, since preventive measures (to contain the virus) will constrain economic activity,” he said.

Kuroda rejected criticism by some analysts that the BOJ was threatening its independence from government interference by monetising public debt through aggressive bond purchases.

“Given the impact of COVID-19 (on the economy), the BOJ has purchased government bonds to maintain stability in the bond market and keep the entire yield curve at low levels,” he said.

“This is monetary policy ... I don’t think this kind of policy mix, or coordination (with the government) would make the central bank less independent,” he added.

Kuroda also said Japan’s financial system was “quite safe and stable,” countering concerns that the fallout from COVID-19 could trigger a banking-sector crisis.

“But if the COVID 19-driven downturn prolongs longer than expected, we have to be vigilant to the risks to financial system stability,” he said.

Reporting by Leika Kihara; Editing by Andrew Heavens and Hugh Lawson