December 2, 2013 / 3:55 AM / 4 years ago

BOJ's Kuroda unwavering on inflation goal as Japan capex rises

NAGOYA/TOKYO, Japan (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Monday he saw no need to water down the bank’s commitment to achieve 2 percent inflation in two years, stressing that the country was on track to meet the target despite risks from soft overseas growth.

He also signaled the bank’s readiness to maintain its ultra-loose policy for as long as needed to sustainably achieve the inflation target, or expand stimulus further if the economy and prices sharply undershoot its forecasts.

Kuroda has faced a rift in the nine-member board with four voicing doubts about the BOJ’s rosy projections, including two skeptics of the price target who made unsuccessful proposals in October to water it down.

Many economists also doubt the BOJ can reach its inflation goal so soon.

Describing 2 percent inflation as a “global standard” adopted by most major central banks, Kuroda shrugged off the view the price target was too ambitious for a country mired in deflation for 15 years, or that the BOJ’s board was split on the feasibility of the target.

“I do not think that achieving 2 percent inflation in two years has become difficult or that such views have grown (within the board),” Kuroda told a news conference after meeting with business leaders in Nagoya, central Japan.

“I see no need and have no plan to modify the target.”

The remarks came after data showed on Monday Japanese companies raised spending on factories and equipment by 1.5 percent in July-September from a year ago, although the slow pace of increase cast some doubt on the strength of capital spending that is key to sustaining economic growth.

The reading suggests that Japan’s gross domestic product growth for July-September is likely to be little changed, after preliminary data showed a 0.5 percent expansion from the previous quarter, or an annualized rate of 1.9 percent.

Kuroda said capital expenditure will likely increase as a trend, though he warned that overseas uncertainties were among key risks in meeting the central bank’s price goal.

“Of course, we are ready to adjust monetary policy without hesitation if upside or downside risks materialize,” he told business leaders in Nagoya, reiterating the bank’s readiness to offer further stimulus if risks threaten the price target.

“If overseas economies perform worse than expected, this may affect Japan’s economy,” he said.

Capital spending has been a weak spot in Japan as Prime Minister Shinzo Abe struggles to spur business investment and wage increases at many companies, which remain unconvinced that his reflationary policies will have a lasting impact.


Japan’s economic growth has outpaced that of its G7 peers this year, but the pace slowed in July-September as private consumption and exports moderated. Economists expect growth to pick up again in the current quarter as consumers rush to buy goods before a national sales tax hike next April.

Pessimists in the BOJ board have warned that risks to the economy and prices were tilted to the downside, pointing to weak exports, an expected slump in household spending after the tax hike and the risk firms may be slow in raising wages.

Kuroda, however, maintained his upbeat view on Japan’s economy, saying it was recovering moderately and proceeding steadily towards the BOJ’s 2 percent price target.

“There is a risk the negative impact from the sales tax hike may prove to be bigger than expected,” he said, although adding that he saw the chance of this happening as slim.

The yen has been under pressure on speculation that the BOJ may ease policy again around next spring to offset the pain from the sales tax hike. The BOJ argues that the damage to the economy will be limited, and that its rosy projections already factor in the impact from the tax hike.

Under its framework put in place in April, the BOJ aims to double base money in two years to 270 trillion yen ($2.6 trillion) by the end of 2014 via purchases of government bonds and risky assets.

Kuroda said that target was by no means signaling a timeframe for ending the ultra-easy policy, stressing that the BOJ was ready to maintain the framework even beyond end-2014 if its price target was not met by then.

He also signaled the BOJ’s readiness to extend two special loan facilities, aimed at encouraging banks to boost lending, beyond the current deadline of March, saying that they have been ”fulfilling their functions well.

The MOF’s capital spending data will be used to calculate revised third-quarter GDP data, which is scheduled for release at 8:50 a.m. on December 9 (2350 GMT December 8).

($1 = 102.3650 Japanese yen)

Editing by Chris Gallagher & Kim Coghill

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