Bank of Japan Governor Haruhiko Kuroda said the bank will do what is necessary to defeat deflation, while declining to discuss specific additional measures it might take.
The bank’s asset-purchase program has “been exerting its intended effect, which is quite encouraging,” Kuroda said at the Council on Foreign Relations in New York. “By continuing to pursue” this policy, he said, “we are convinced that we will definitely overcome deflation.”
Japan’s benchmark Nikkei 225 Stock Average has gained 37 percent this year through today as a weakening yen helped boost profits of exporters from Toyota Motor Corp. to Sony Corp.
“The economy is on track,” Kuroda said. “The real economy, prices and expectations -- all of them are improving as we intended.” Kuroda said he expects wages to start to rise next year, and an increase in the sales tax to 8 percent from 5 percent starting in April won’t hamper growth.
It would be “premature” to speculate what additional stimulus steps the central bank could take if the economy faltered, Kuroda said. “At this stage, the economy is on track and everything is going on as we intended so I don’t think it’s appropriate for me” to speculate, he said.
Kuroda said the central bank’s policies aren’t aimed at weakening the yen and are trying to boost the domestic economy. “We do not target exchange rates,” he said.
The yen weakened to 98.13 to the dollar at 10:30 a.m. in New York from 97.34 late yesterday.
Economic data this month have indicated the world’s third-largest economy continues to recover, with sentiment among large manufacturers at the highest level since December 2007, and machinery orders, an indicator for capital spending, jumping to the highest since the collapse of Lehman Brothers Holdings Inc. in 2008.
Positive developments are spreading in Japan’s economy and financial markets and expectations are turning favorable, Kuroda said on Oct. 4 after the central bank kept monetary policy unchanged.
The Bank of Japan has promised to double the monetary base, a gauge of the money supply, by the end of next year in a bid to generate 2 percent inflation in two years.
Kuroda said the central bank’s policies are aimed at increasing inflation expectations.
“Prolonged deflation” has led to “persistent deflation expectations,” Kuroda said today. “It is natural for prices not to increase” when those expectations have “become entrenched.”
Core consumer prices, which exclude fresh food, rose 0.8 percent in August, the largest increase since November 2008. The increase was led by higher energy prices, with the weak yen and the shutdown of all of Japan’s nuclear power plants increasing the cost of the nation’s energy imports.
Kuroda said Japanese bond yields may “eventually” climb if policy makers are able to boost expectations for price increases.
“If we successfully raise inflation expectations to 2 percent,” it’s “irrational” for bondholders to “accept” such low interest rates, he said.
Until the central bank exits from its asset purchase program, “we intend to contain as much as possible long-term interest rates from rising,” Kuroda said.