BOJ’s Kuroda pledges steadfast stance to maintain ultra-simple policy

  • Japan is not in a situation that justifies monetary tightening
  • Households are more accepting of price increases – Kuroda
  • Wage growth is essential for inflation to become sustainable
  • As long as the movements are stable, the weak yen benefits the economy – Kuroda

TOKYO, June 6 (Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Monday the central bank’s top priority was supporting the economy, underscoring an unwavering commitment to maintaining a “powerful” monetary stimulus.

Unlike its US and European counterparts, the BOJ does not face a trade-off between the need to control inflation and support the economy, as inflation in Japan remains subdued and driven by temporary factors such as the rising raw material costs, Kuroda said.

“Japan is absolutely not in a situation that warrants monetary tightening, as the economy is still recovering from the impact of the pandemic,” Kuroda said in a speech.

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As Russia’s invasion of Ukraine pushes up commodity costs, Japanese households are increasingly accepting higher prices, Kuroda said, describing it as a “significant change” from the perspective of the BOJ’s price target.

But consumer inflation in Japan needs to average 2%, and not temporarily due to cost-push factors, Kuroda said.

“For inflation to accelerate steadily towards 2%, wage and price growth must mutually increase in a positive cycle,” he said.

“The BOJ will be steadfast in its stance of maintaining strong monetary easing, so that recent changes such as a rise in inflation expectations … lead to sustained price growth,” he said.

On the yen’s recent movements, Kuroda reiterated his view that exchange rates should move in a stable manner, reflecting economic fundamentals.

While the falling yen hurts households and retailers by raising import costs, it helps regional areas by attracting foreign tourists as Japan reopens its borders, Kuroda said.

“As long as the movements are stable and not very pronounced, a weak yen in general is likely to have a positive impact on the Japanese economy,” Kuroda said.

Japan’s core consumer prices in April rose 2.1% from a year earlier, beating the BOJ’s 2% target for the first time in seven years, largely due to rising fuel and food prices.

BOJ officials have repeatedly stressed that such cost inflation will prove temporary and will not prompt the central bank to tighten monetary policy.

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Editing by Sam Holmes and Jacqueline Wong

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