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BOJ Kuroda's optimism on economy, price outlook sends yen to 4-month high

[January 15, 2018] By Leika Kihara and Stanley White

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda offered a positive view on the economy and inflation on Monday, sending the yen to a four-month high against the dollar on simmering speculation it may exit its ultra-loose monetary policy earlier than expected.

Financial markets ignored Kuroda's reminder that the BOJ will maintain its massive stimulus in a sign of how nervous investors have become on when it might follow the footsteps of other central banks in dialing back crisis-mode stimulus.

The BOJ also offered its most optimistic view on regional areas of Japan in nearly a decade in a quarterly report, underscoring its conviction a broadening recovery will help accelerate inflation to its ambitious 2 percent target.

Kuroda said in a speech to BOJ regional branch managers that core consumer inflation was "moving around 1 percent," a slight change from three months ago when he said core consumer prices were around zero.

"The economy is expected to continue expanding moderately," he added, reiterating his optimism on prospects for a sustained recovery.

The comments sent the dollar falling as low as 110.58 yen <JPY=>, as some traders bought the yen on expectations the BOJ could dial back stimulus earlier than expected - a view that heightened after a slight cut in its debt purchases last week.

"Kuroda's change in language merely reflects recent price gains, but people have become sensitive to even the subtlest difference since the BOJ cut bond purchases," said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

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Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a news conference at the BOJ headquarters in Tokyo, Japan, December 21, 2017. REUTERS/Issei Kato

"Members of the government are also making more positive comments about escaping deflation. Policymakers are gradually changing their tone."

Kuroda also said a moderate economic expansion now under way will help accelerate inflation toward the BOJ's 2 percent target, signaling its desire to maintain the status quo on monetary policy for the time being.

RECOVERY BROADENING

In the quarterly report, the BOJ raised its assessment for three of Japan's nine regional economies and maintained its rosy view for the remaining six regions.

The central bank said two regions were seeing their economies "expanding," the first time it has used such an upbeat assessment for as many regions since April 2007.

Shinichi Uchida, head of the BOJ's Nagoya branch in central Japan, said conditions for wage increases were falling into place as firms face intensifying labor shortages.

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