TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Tuesday he expects to meet the central bank's 2 percent inflation target around next fiscal year if the BOJ continues with its current monetary easing.
Speaking in the lower house fiscal and monetary policy committee, Kuroda said that the BOJ would adjust policy if needed, but that the central bank had recently upgraded Japan's economic outlook and the global economy was growing stronger.
"Japan's output gap is improving rapidly and the labor market is tight," Kuroda said.
"If we continue our current aggressive monetary easing I think inflation will reach 2 percent around fiscal 2018. However, we have delayed the target, so I want to watch inflation expectations and respond quickly if needed."
The BOJ offered its most optimistic assessment of the economy in nine years at its policy meeting last month, but Kuroda said inflation expectations remain subdued, suggesting the central bank's quantitative easing will remain in place for some time.
The BOJ maintained its short-term interest rate target at minus 0.1 percent and a pledge to guide 10-year government bond yields around zero percent at the meeting.
It also kept intact a loose pledge to buy government bonds so its holdings increase at an annual pace of 80 trillion yen at the meeting.
Since then, the BOJ has said it will reduce its monthly government debt purchases in May, showing the central bank is stepping back from the 80 trillion yen target.
Prior to the meeting, a Reuters poll showed economists expected the BOJ's next move would be to tighten monetary policy, though many do not expect it to happen until next year at the earliest.
However, some economists argue that this will be difficult because consumer prices are currently around zero and this is to distant from the BOJ's 2 percent price target to make monetary policy less accommodative.
Editing by Chang-Ran Kim and Sam Holmes