Bank of Japan (BOJ) Governor Haruhiko Kuroda pledged to forge on with very accommodative monetary policy as he warned that his inflation target remains distant and the pace of growth in the world’s third-largest economy looks unsustainable.
Speaking in an interview with Bloomberg in Jackson Hole, Wyoming, Kuroda also said the BOJ’s yield-curve control program has been working quite well and that he does not see a need to adjust it at present.
He added that the BOJ might be able to control rates while buying fewer Japanese government bonds and that the market is still “functioning quite well.”
The BOJ governor, who joined US Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi at the mountain retreat for an annual gathering of monetary policymakers, is grappling with an economy that is in its longest run of expansion in more than a decade, but is still failing to generate significant wage gains and a healthy level of inflation.
“I think 4 percent growth is excellent, but we don’t think 4 percent growth can be sustained. Around 2 percent growth is likely,” Kuroda told Bloomberg Television’s Kathleen Hays. “I think for some time we have to continue this extremely accommodative monetary policy.”
While Yellen and Draghi are also contending with growth and inflation that are somewhat out of sync, Kuroda views the problem in Japan as more serious.
“The economic and price situation in the US is much, much better than the situation in Japan,” Kuroda said.
He said that Japanese businesses and labor unions still exhibit a “deflationary mindset,” which is crimping price gains and has seen the BOJ delay the projected timing for reaching its 2 percent price target six times.
“Kuroda is saying that he won’t respond to a pick-up in just one quarter,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG and a former BOJ official.
“The economy is doing better than they noted in the outlook report in July and that could fuel debate within the BOJ that they might be able to raise their inflation forecasts, but he is containing this,” Shirakawa said.
While wages have risen to some degree in Japan, firms have not had to raise prices, Kuroda said in the interview, citing companies investing heavily in labor-saving equipment and changing their business models to get by with fewer workers.
On a positive note, Kuroda also pointed to a general increase in business investment in Japan.
He said the BOJ’s purchases of exchange-traded funds, which were aimed at reducing risk premiums, had contributed to this.
“So in that sense it has been successful, but I don’t think at this stage we can expand this program,” he said of ETF purchases.
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