February 6, 2019 / 5:50 AM / 13 days ago

Japan PM Abe defends BOJ's policy despite inflation woes

TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe praised the Bank of Japan’s ultra-loose monetary policy for helping create jobs, suggesting the government wasn’t unduly worried that inflation remains distant from the central bank’s 2 percent target.

FILE PHOTO: Japan's Prime Minister Shinzo Abe delivers his policy speech at the lower house of parliament in Tokyo, Japan January 28, 2019. REUTERS/Issei Kato

Abe told parliament on Wednesday the government “accepts” the explanation given by the BOJ on why inflation has failed to hit its target, stressing the economy would have been in much worse state without the central bank’s stimulus program.

“What’s most important is what is happening to the economy as a result of the BOJ’s target, which is that more jobs were created,” Abe told an opposition lawmaker, who criticized the central bank for failing to drive up inflation.

Abe hand-picked BOJ Governor Haruhiko Kuroda in 2013 to deploy a heavy asset-buying program aimed at eradicating deflation and accelerating inflation to its 2 percent target.

The economy staged a recovery but inflation remains nowhere near the BOJ’s goal despite six years of money printing, putting the premier’s “Abenomics” stimulus policies under fire.

The BOJ has blamed falling oil prices and the Japanese public’s sticky deflationary mindset for delaying achievement of its price target.

Kuroda defended his policy, saying that Japan was not alone among advanced economies to see inflation hurt by factors beyond the central banks’ control such as sliding oil prices.

“Expanding base money alone won’t immediately have an effect on the economy,” Kuroda told the same parliament committee.

“With huge expansion of base money, central banks can push down real interest rates and bank lending rates, which in turn would stimulate the economy,” he said. “This is what happened in the past six years.”

The BOJ kept monetary policy steady last month but cut its inflation forecasts and warned of growing risks to the economy from trade protectionism and soft global demand.

Annual core consumer inflation slowed to a seven-month low of 0.7 percent in December, data showed last month, a further sign of the growing challenge faced by the BOJ.

Reporting by Leika Kihara and Stanley White; Editing by Chang-Ran Kim & Shri Navaratnam

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