|
 Nakaso, one of Governor Haruhiko Kuroda's two deputies, said that
while slumping oil costs have pushed inflation back to zero, rising
wages and a steady economic recovery will underpin a long-term rise
in prices.
"What's important is the underlying trend of inflation dynamics,
which are steadily improving," Nakaso told Reuters in an interview
on Thursday, his first with non-Japanese media in nearly a year.
"As long as there's no change to the underlying trend of inflation,
additional monetary easing is unnecessary."
Expectations that the BOJ might add to its stimulus program at a
rate meeting on April 30 have helped send Japanese shares to a
15-year-high.
But Nakaso's remarks are the strongest denial to date by a senior
BOJ official about the need for immediate policy action. They also
show that Nakaso, who rarely speaks in public, shares Kuroda's
conviction that Japan is on track to hit the bank's 2 percent
inflation target in about a year from now.
The BOJ is under pressure to cut its forecast that inflation will
hit 2 percent within the current fiscal year at a twice-yearly
review of its projections on April 30, due to the impact of falling
oil prices.
But while acknowledging that inflation was moving away from the
BOJ's target, Nakaso said there were clear improvements in inflation
expectations such as the rising number of firms promising wage
hikes, including for temporary workers.
"We're seeing some positive changes in corporate and household
behavior that rarely happened when Japan was mired in deflation,"
Nakaso said.
"That's evidence that Japan is shaking off its deflationary
mindset."
The BOJ now expects core consumer inflation to hit 1.0 percent in
the year to March 2016, roughly triple the pace estimated by private
analysts.
GREECE A RISK
Nakaso became deputy governor when Kuroda took the helm in 2013 and
deployed his "quantitative and qualitative easing" (QQE) program - a
radical monetary experiment aimed at getting inflation to 2 percent
in roughly two years.
Nakaso said he saw no need to alter the BOJ's pledge to hit 2
percent inflation "at the earliest possible time with a time horizon
of about two years" as having that target will help in its efforts
to stimulate the economy.
"We have no intention of changing this commitment," he said.
The BOJ argues the two-year time frame is not a rigid deadline but a
broader commitment with room for maneuver.
Nakaso, an expert on market operations, said he was mindful of the
need to ensure the BOJ's massive purchases do not dry up liquidity
in the bond market.
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But there is so far no sign of severe market distortions or
excessive risk-taking spurred by QQE, he said, brushing aside
concerns held by some board members that the cost of the stimulus
was outweighing the benefits.
"I don't think we'll face a situation where our purchases will be
interrupted," he said, suggesting that the BOJ still had room to top
up bond purchases if it were to expand QQE again.
The BOJ now holds nearly a quarter of Japan's government bond market
as it buys up almost all the bonds sold by the government each
month, raising concerns it was crowding out private investors.
Its aggressive purchases also mean its balance sheet is now equal to
the size of Australia's economy, making an exit from QQE
increasingly challenging.
Nakaso, who played a key role in ending the BOJ's previous
quantitative easing in 2006, was quiet on how the bank might end QQE,
saying only that it had tools available to withdraw stimulus when
needed.
While his conviction of achieving the BOJ's price target appeared
unwavering, Nakaso warned events overseas - notably the unfolding
crisis in Greece - could disrupt the positive momentum building in
Japan's economy.
"Deposits continue to be withdrawn from Greek banks and the
government's financing looks pretty tight," he said.
"If Greece exits from the euro, even if accidentally, this could
cause market turmoil and repercussions for Japan's economy," said
Nakaso.
Such worries and other duties keep him at the BOJ's headquarters
almost round the clock.
The soft-spoken 61-year-old confirmed his well-known reputation as a
workaholic, admitting that he couldn't think of anything he does
besides work on a weekend.
"I don't have a particular hobby. I'll think of something once Japan
exits deflation."
(Additional reporting by Stanley White and Yoshifumi Takemoto;
Editing by Rachel Armstrong)
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