|
 Haruhiko Kuroda, once Japan's top currency diplomat, also sought to
keep the yen in check, warning that sharp gains were unwarranted
with the BOJ maintaining its massive stimulus while its U.S.
counterpart started to think of interest rate rises.
In a news conference after a widely expected decision to keep
monetary policy steady, Kuroda said the world's third-largest
economy would ride out the effects of a sales tax rise in April and
inflation would head towards 2 percent next year.
"We're clearly seeing a shift in trend where companies, instead of
cutting prices, are trying to heighten the quality of their goods to
sell them at higher prices," he said.
"I don't think there is a possibility that consumer inflation will
fall below 1 percent."
The BOJ believes that, after hitting 1.4 percent in the year to May,
inflation will slow in coming months due largely to the base effect
of last year's spike in energy costs, before accelerating again
toward its 2 percent target.
Many market participants doubt prices will rise that much and some
have speculated that if inflation slides below 1 percent in coming
months, the BOJ could be forced into easing policy further to ensure
the target is met.
Kuroda's remarks may cause the market to scale back already
shrinking expectations of further easing this year.
"I think the chance of additional easing is small as slack in the
economy is gone," said Hiroshi Shiraishi, senior economist at BNP
Paribas Securities, agreeing with the BOJ's view that inflation
would probably not fall below 1 percent.
"However, Kuroda's comments could reduce room for maneuver as the
BOJ would be compelled by the market to react if consumer price
inflation did fall below 1 percent."
The BOJ maintained its policy framework, under which it has pledged
to increase base money by 60-70 trillion yen ($590-$690 billion) per
year through aggressive asset purchases, largely of Japanese
government bonds.
In a quarterly review of its long-term forecasts, the central bank
cut its economic growth projection slightly for this fiscal year as
exports remain weak and household spending tumbled more than
expected after a sales tax increase in April.
But the BOJ's nine-member board maintained its inflation projections
and stuck to the view the economy would continue recovering
moderately as the impact of the tax rise fades.
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"The downturn in spending after the sales tax hike is roughly within
expectations," Kuroda said. "Domestic demand, including capital
expenditure, remains firm as a trend. A virtuous cycle in economic
activity clearly remains in place."
OPTIMISTIC VIEW INTACT
The BOJ has left policy unchanged since unleashing an intense burst
of stimulus in April last year, when it pledged to pull Japan out of
chronic deflation and push up consumer price inflation to 2 percent
in roughly two years.
But a recent slew of weak data has cast doubt on the BOJ's scenario
of an investment-driven economic recovery.
Household spending and machinery orders, a leading indicator of
capital spending, both tumbled in May, underscoring the fragile
state of a recovery that has been driven by domestic demand as
exports fail to pick up.
The BOJ trimmed its economic growth forecast for the fiscal year to
March 2015 to 1.0 percent from the 1.1 percent projected three
months ago. That is still higher than the 0.9 percent rise forecast
in a Reuters poll.
But it left unchanged its growth projections for fiscal 2015 and
2016, as well as its price forecasts that see consumer price
inflation hitting 1.9 percent in the next fiscal year.
Kuroda acknowledged that a slump in exports was lasting longer than
expected, although he saw shipments picking up as global growth
recovers.
He also said the differing monetary policy trajectories of Japan and
the United States meant the yen was unlikely to rise much against
the dollar. A weaker yen gives Japanese exporters a competitive
advantage in overseas markets.
"In the United States, monetary policy isn't heading towards further
easing and is rather heading towards a taper (of asset purchases)
and an interest rate hike," he said.
"On the other hand, in Japan, we're only halfway through in meeting
the 2 percent price target and we will maintain our quantitative
easing program until the price target is stably met. If that's the
case, I see no reason for the yen to strengthen against the dollar."
($1 = 101.3500 Japanese Yen)
(Additional reporting by Tetsushi Kajimoto and Kaori Kaneko; Editing
by Kim Coghill and Alan Raybould)
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