TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda on Thursday warned of the potential damage recent protectionist moves could have on the export-reliant economy as Washington and Tokyo took steps to begin bilateral trade negotiations.
U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe agreed on Wednesday to start trade talks in an arrangement that, for now, protects Japanese automakers from further tariffs, seen as a major threat to the export-dependent economy.
Kuroda said Japan’s economy continues to enjoy a moderate expansion, pointing to a second-quarter rebound in growth from a contraction in the January-March period.
“We need to be vigilant of the potential impact of recent protectionist moves, though the economy is likely to sustain a moderate expansion,” Kuroda said in a speech to an annual meeting of Japan’s securities industry.
Kuroda also said there was no change to the BOJ’s stance of seeking to achieve its 2 percent inflation target at the earliest date possible through powerful monetary easing.
Kuroda defended the measures the BOJ took in July to make its policy framework sustainable - such as allowing bond yields to move more flexibly around its zero percent target - saying they have helped revive trading activity in the bond market.
“The measures the BOJ took (in July) would strengthen the effect of monetary easing as a whole, in the sense it would allow us to continue powerful monetary easing,” Kuroda said.
“The steps will help accelerate inflation to 2 percent at the earliest date possible, while ensuring financial market stability.”
The BOJ has been forced to maintain a massive stimulus program longer than expected despite the rising costs, such as the hit to bank profits from prolonged ultra-low rates.
Kuroda said the BOJ would continue to guide policy “appropriately” with a focus on risks, such as those on Japan’s banking system.
That contrasted with his remarks earlier in the year that the central bank would focus on achieving its price target in guiding monetary policy, in a sign the BOJ was putting more focus towards addressing the side-effects of its easy policy.
Reporting by Leika Kihara; Editing by Chris Gallagher & Shri Navaratnam