Bank of Japan Governor Haruhiko Kuroda on Thursday reiterated the central bank’s commitment to achieve the 2 percent inflation target as early as possible and stated that the additional stimulus was not just in response to a slump in crude oil prices.
Speaking at a business leaders’ conference in Tokyo, Kuroda said, “If 2 percent inflation is achieved in Japan as in trading partners going forward, at least a risk of the appreciation of the yen brought about by the differences in inflation rates between Japan and abroad will become smaller.”
Following a peak in April, Japan’s consumer price inflation eased given the weak demand following the sales tax hike and the decline in global oil prices.
“To avoid any misunderstanding, let me be clear that the additional easing was not a response to the decline in crude oil prices itself,” the BoJ Chief said.
“Japan, a commodity-importing country, gains a large advantage from the decline in crude oil prices, especially when the decline is caused mainly by supply-side factors such as developments in oil-producing countries as it is this time.”
On October 31, the BoJ Board decided to expand monetary stimulus to prevent any weakening of inflation expectations in the backdrop of falling oil prices.
“While the decline in crude oil prices put downward pressure in the short term, it will lead to an improvement in the output gap and to an increase in underlying prices from a somewhat longer-term perspective,” Kuroda said.
“The reason for deciding on the additional easing despite this is that the Bank judged that we are still in the midst of converting the deflationary mindset and there is a risk that a slowdown in the actual rate of increase in the CPI might delay this conversion.”
Further, Kuroda said signals from the financial market suggest that the BoJ’s resolution to achieve the 2 percent inflation target at the earliest “has been well understood”.
He also expressed hope that the positive effects of the additional monetary easing will reflect on wage negotiations next spring and on firms’ price setting.
The material has been provided by InstaForex Company – www.instaforex.com