February 5, 2018 / 4:33 AM / 8 months ago

Abe hopes BOJ to keep 'bold' monetary easing, Japan not out of deflation

TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe said on Monday he hoped the central bank would continue to promote “bold” monetary easing, as the economy has yet to emerge decisively from deflation.

Japan's Prime Minister Shinzo Abe makes a speech at an opening of a new session of parliament in Tokyo, Japan January 22, 2018. REUTERS/Kim Kyung-Hoon

Abe rebuffed the view the Bank of Japan’s 2 percent inflation target was too ambitious for a country mired in two decades of deflation, saying the central bank’s commitment and actions to hit the target had helped revive the economy.

“A positive economic cycle is kicking off. I hope the BOJ continues to promote bold monetary easing to achieve its 2 percent inflation target,” Abe told parliament.

He also said it was premature to declare an official end to deflation despite growing signs of strength in the economy.

“An end to deflation means prices aren’t falling consistently and there is assurance Japan won’t slip back into deflation in the future,” Abe said. “We need to look at developments more.”

The remarks come ahead of a leadership change at the BOJ with the five-year terms of Governor Haruhiko Kuroda and his two deputies expiring in April and March, respectively.

The government is seen presenting to parliament its nominees around mid- to late February at the earliest, sources say, with a strong chance Kuroda will be reappointed.

Kuroda told the same parliamentary committee the BOJ was in no rush to withdraw its massive stimulus program.

He conceded that prolonged monetary easing was adding to strains for regional banks, already suffering from narrowing margins due to an ageing population.

“Still, it’s extremely important to achieve our 2 percent inflation target,” Kuroda said. “Japan’s inflation remains distant from our target, so we need to patiently continue with powerful monetary easing.”

A strengthening economy and subdued inflation have posed a dilemma for the BOJ, which is forced to sustain crisis-mode stimulus despite rising costs, such as the drag on bank profits from near-zero rates.

Kuroda has struggled to hose down speculation the BOJ could follow in the footsteps of its U.S. and European peers in dialing back stimulus, driven in part by signs of recovery in the economy.

Reporting by Leika Kihara; Editing by Chang-Ran Kim and Jacqueline Wong

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