Japanese Prime Minister Shinzo Abe said that the central bank shouldn’t pursue a 2 percent inflation target “at all costs” and may fail to achieve it should global conditions change.
“The economy is a living thing and we don’t know what will happen around the world,” Abe said today, answering a question from opposition lawmaker Seiji Maehara in parliament. “What is important is to aim steadily for the target.”
Abe was speaking two days before the first monetary decision due under Haruhiko Kuroda, the new Bank of Japan governor, who has pledged to step up easing to defeat deflation and spur growth in the world’s third-biggest economy. Kuroda also spoke to lawmakers today, reiterating that he aims to achieve the 2 percent price goal within two years.
“Though Kuroda has pledged to achieve 2 percent inflation, given Japan’s reality, this is an extremely tough goal” and Abe is aware of that, said Mikihiro Matsuoka, chief economist at Deutsche Securities Inc. in Tokyo. “Under the target, the BOJ will keep expanding stimulus and its actions will help to weaken the yen, boost profits and stimulate economic growth - that’s what Abe may want to see ultimately.”
The yen today strengthened past 93 per dollar for the first time in a month, before paring gains to weaken 0.1 percent to 93.29 as of 7:58 p.m. in Tokyo. Japan’s currency has weakened about 14 percent since mid-November on expectations of more monetary easing.
“We intend to make it easier for the market to understand our stance on monetary easing by combining” an asset purchase fund with monthly bond purchases, Kuroda said during a parliamentary hearing in Tokyo today. The central bank must ease boldly to back up inflation expectations, Kuroda said.
“Thanks to the yen having corrected properly, the break-even point for export industries has been substantially improved, and stocks have risen,” Finance Minister Taro Aso said in parliament today in response to a lawmaker’s question.
Kuroda last week said the central bank will consider combining its monthly bond purchases and asset-purchase fund, as well as buying more debt with longer maturities.
Maehara asked Abe whether the price target had to be reached within two years even if it created distortions in long term interest rates and currencies. Abe replied that while there has been talk of a two-year timeframe, “we are not advocating doing this at all costs.” Maehara afterwards said the answer was different from what Abe had said in the past.
Kuroda tomorrow convenes the two-day meeting, with former BOJ Deputy Governor Kazumasa Iwata predicting he will fail to achieve the inflation target within two years.
The central bank’s quarterly Tankan survey yesterday showed confidence among big manufacturers improving by less than estimated, bolstering Kuroda’s case for more stimulus. Lingering pessimism may make it harder to boost wages and spending, impeding the BOJ’s inflation goals.
The Topix Index fell 3.3 percent yesterday after the Tankan the most since March 2011. The Nikkei 225 Stock Average was down 1.1 percent today after falling 2.1 percent yesterday.