Japan’s economy has stopped weakening and should show signs of recovery by midyear, the newly appointed central bank governor said yesterday, as weaker-than-expected retail sales for last month underscored the challenge he faces in restoring consumer confidence.
“The bank currently assesses that the economy has stopped weakening,” Bank of Japan Governor Haruhiko Kuroda told lawmakers in presenting the bank’s semiannual report.
However, he said there was still “a high degree of uncertainty” about the world’s third-largest economy because of the crisis in Europe, the tenuous state of the US recovery and often testy relations with China.
Kuroda has pledged to work with Japanese Prime Minister Shinzo Abe’s government in achieving a 2 percent inflation target, preferably within two years, and ending years of growth-inhibiting deflation. However, the success of that program will hinge on ensuring that domestic demand is strong enough to spur investment and hiring by companies that are sitting on huge cash reserves.
It also requires moves by the government to cap the country’s fast rising public debt — the largest among advanced industrial nations — and reassure markets that Japan finances will remain sound, Kuroda said.
“To avoid an increase in interest rates on the back of declining confidence in fiscal management, it is also important to take measures aimed at achieving fiscal consolidation in the medium to long term,” he said. “We expect the government to take appropriate actions.”
Exports, battered by feeble demand in the key US and European markets and by anti-Japanese protests in China, appear to have stopped declining, Kuroda said, while private consumption has remained resilient.
“With regard to the outlook, the pick-up in Japan’s economy is expected to become more evident around mid-2013,” he said.
Data from the Japanese Ministry of Economy, Trade and Industry, released yesterday, showed retail sales falling 2.3 percent from a year earlier last month, worse than the 1.2 percent drop forecast by most analysts. Sales rose 1.6 percent from the month before.
Consumer prices are unlikely to rise for the next few months, but after that Japan would see progress toward its inflation target as the economy moved toward a “moderate recovery path,” Kuroda said.
The BOJ’s asset purchases and other strategies adopted so far have not been sufficient to reach the inflation target, he said, reiterating his intention to manage market expectations and “make clear that we have adopted the uncompromising stance that we will do whatever is necessary to overcome deflation.”