(Reuters) - The Bank of Japan maintained its massive monetary stimulus and its upbeat view on the economy on Thursday, unfased by recent signs the pain from an April sales tax rise may last longer than expected and make its inflation target harder to achieve.
Following are comments from BOJ Governor Haruhiko Kuroda at his post-meeting news conference:
“Exports and output are showing weak movements. But job and income conditions are improving steadily, and household confidence is firm. Companies, reflecting improving earnings, are maintaining their bullish investment plans. A positive economic cycle remains in place.”
”The U.S. economy is recovering steadily, and the country’s monetary policy is about to complete tapering (its asset purchases). On the other hand, ultra-loose monetary policies are set to continue in Europe and Japan. Judging from fundamentals, it won’t be that surprising if the dollar strengthens.
“I don’t think dollar rises against the yen would be particularly negative for Japan’s economy.”
”The yen overshot against European, U.S. and Asian currencies after the global financial crisis, but then gradually reversed course in line with economic fundamentals. It’s hard to say how currencies will perform from here and how they ought to perform.
“When you look at the differences in monetary policies of the United States, Japan and Europe, you see that Japan and Europe are maintaining easy policies, while the United States is about to end tapering and foresee a rise in short-term interest rates. It’s natural to see a currency of a country whose economy is doing well to rise ... I don’t think it’s undesirable for Japan’s economy for the yen to weaken further from current levels.”
On whether Japan should proceed with the second stage of a sales tax hike to 10 percent next year: ”That’s for the government and parliament to decide, so I don’t have anything in particular to say. But it’s very important for Japan’s fiscal state and for its economy that steady progress is made in efforts to restore fiscal health ...
“The positive cyclical mechanism is in place for both households and companies.”
”It’s hard to compare the risks of proceeding with the second sales tax hike, and delaying it. But a delay in the second sales tax hike may trigger market doubts about the government’s resolve to restore Japan’s finances. The possibility is small but if that happens, there’s not much the government and the BOJ can do.
“On the other hand, if the second sales tax hike or other external factors result in the economy worsening more than expected, there are fiscal and monetary policy measures that can be taken.”
“Frankly, it’s true economic growth has been undershooting our projections (since April last year) due to various one-off factors, including external factors such as soft Asian demand. But inflation has largely moved in line with our forecasts.”
Reporting by Leika Kihara, Stanley White and Tetsushi Kajimoto; Editing by Chris Gallagher