October 10, 2017 / 12:31 AM / 4 months ago

BOJ Governor Kuroda pledges to stick with quantitative easing

TOKYO (Reuters) - The Bank of Japan raised its assessment of four of the country’s regional economies due to strong exports, consumer spending and construction, an encouraging sign that the broader economy can continue to grow at a healthy pace.

BOJ Governor Haruhiko Kuroda on Tuesday reiterated the central bank’s resolve to maintain its massive stimulus programme until inflation moved sustainably above its 2 percent price target.

He also said inflation was likely to gradually accelerate towards 2 percent due to improvements in the output gap and inflation expectations.

“Japan’s economy is expected to continue expanding moderately in the future,” Kuroda said in a speech at a quarterly meeting of the central bank’s regional branch managers.

In a quarterly report on regional areas of Japan, the BOJ revised up its assessment for four of nine regions and maintained its upbeat assessment for the other five.

The report upgraded three regional economies to “expanding moderately” or “moving towards a moderate expansion”, their most bullish assessment in 10 years.

One region was also upgraded to “expanding moderately” for the first time since the BOJ began regional surveys in 2005.

Tuesday’s report follows the BOJ’s tankan survey which showed confidence among big manufacturers rose to the highest in a decade, as a weak yen and robust global demand add momentum to the economic recovery.

The BOJ still faces a dilemma, because inflation remains weak even though the labour market, capital expenditure and exports are all doing well.

In August, Japan core consumer prices rose 0.7 percent from a year earlier, which is still very distant from the central bank’s 2 percent inflation target.

Kimihiro Eto, the BOJ’s Osaka branch manager, offered an explanation of why inflation remains so low.

“We see rising spending on big-ticket items due to rising wages and a tight labour market,” he said. “At the same time, households are really hunting for bargains on daily goods, suggesting some concerns about the future. This behaviour is hard to change.”

After three years of heavy asset buying failed to drive up inflation, the BOJ revamped its policy framework last year to one capping long-term interest rates, instead of targeting the pace of money printing.

Reporting by Stanley White; Editing by Richard Borsuk

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