|
 Iwata acknowledged that weak exports and the rising burden on
households from the tax hike were among risks to the outlook, but
said a pick-up in global demand and wages will keep the world's
third-largest economy on track for a moderate recovery.
"The recovery in consumption has been patchy ... But taken together,
it is gradually recovering. It's not as if household spending is
headed for a deep dive," he told a news conference after meeting
business leaders in Kanazawa, a city in Ishikawa prefecture in
central Japan.
"We're on track to meeting our price target," he said, suggesting
that he saw no need to expand monetary stimulus any time soon to
ease the pain from the tax hike.
Japan's economy shrank an annualized 7.1 percent in April-June from
the previous quarter, the biggest contraction since the global
financial crisis in 2009, due to the hit from the sales tax hike in
April. That has heightened doubts in markets that the BOJ can
accelerate consumer inflation, now around 1.3 percent, toward its 2
percent target next year.
However, Iwata countered the view that wage rises have been slow
despite the BOJ's massive monetary stimulus, saying that it takes
time for companies - long used to deflation and hesitant to increase
wages - to consider raising base salary.
He also disagreed with many analysts that consumer inflation will
slow as the boost from the weak yen begins to fade, saying that
there was no strong historical co-relation between the yen and price
moves.
A weak yen may briefly push up prices by boosting import costs but
that alone cannot accelerate inflation in the long run as
households, hit by higher prices of imported goods, will withhold
spending on other items, Iwata said. As demand weakens for these
goods, firms will be forced to cut prices, he added.
"There are various channels under which our monetary policy affects
prices, including a narrowing of the output gap," he said, stressing
that a tightening job market will lead to higher wages and help the
BOJ achieve its inflation goal.
POSITIVE CYCLE INTACT
The BOJ has stood pat since deploying an intense burst of monetary
stimulus in April last year, when it pledged to double base money
via aggressive asset purchases to achieve its 2 percent inflation
target in roughly two years.
Private-sector analysts expect only a modest economic rebound in the
current quarter as the tax-hike impact persists, and some of them
see the economy barely growing in the current fiscal year ending in
March 2015.
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The BOJ is much more optimistic on the outlook, however, forecasting
in July that the economy will expand 1.0 percent in the current
fiscal year. Still, given the soft GDP data, it is likely to cut its
projections in late October, sources have told Reuters.
Exports have failed to pick up despite recent yen declines,
disappointing policymakers who had hoped rising overseas shipments
will support a fragile economic recovery and help offset the
post-tax hike slump in domestic demand.
With the dollar having hit a six-year high against the yen this
week, some analysts warn that further yen falls may do more harm
than good by boosting import costs.
Iwata said a weak yen was still beneficial for exports, but conceded
that the currency effect has probably become less influential now
than in the late 2000s as many Japanese firms shifted production
overseas.
Still, business sentiment has held up despite the delayed export
pick-up as many companies saw revenues increase, he said.
"With the positive economic momentum in place for both households
and companies, the economy will continue a moderate recovery," Iwata
said, toeing the central bank's official view on the outlook.
(Additional reporting by Stanley White in TOKYO; Editing by Chris
Gallagher & Shri Navaratnam)
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