The Bank of Japan Governor Haruhiko Kuroda gives a speech in a quarterly meeting of the central bank’s regional branch managers on Wednesday - Photo by NHK.

JAKARTA (TheInsiderStories) – The Bank of Japan (BOJ) would not hesitate to ease monetary policy further if necessary in order to maintain momentum toward a 2 percent inflation target, Governor Haruhiko Kuroda said in a speech on Wednesday (01/15). It expected consumer inflation would accelerate toward the target, amid positive output gap and rises in inflation expectations.

“We will adjust policy as necessary to maintain momentum towards our price stability target while examining risks. The consumer inflation, which is hovering around 0.5 percent, would accelerate towards the 2 percent target. But the inflation trend will be affected for the time being by declines in oil prices,” Kuroda told a quarterly meeting of the central bank’s regional branch managers as reported by NHK.

The central bank, he went on, will not hesitate to take additional easing steps if risks heighten to an extent that the momentum towards the price target is undermined. Kuroda dropped a few clues on what steps the central bank might take next.

He was speaking ahead of the Jan. 20-21 rate review, at which the BOJ is likely to slightly revise up its economic forecasts for the fiscal year starting in April, reflecting the expected boost from the government’s latest spending package.

The central bank is widely expected to keep monetary policy steady. Any upward revision will allow the BOJ to justify standing pat on policy for the time being.

The BOJ’s nine-member board will also review its current forecasts for core consumer inflation to hit 1.1 percent in fiscal 2020 and to accelerate to 1.5 percent the following year, although big changes to these projections are seen unlikely. Projections of tame inflation should bolster market views that the BOJ will keep monetary policy ultra-loose to achieve its elusive 2 percent price goal.

At the branch managers’ meeting, Kuroda held to the BOJ’s view that the world’s third-largest economy will see moderate growth despite weak exports, output and business mood, which have been hit by the global slowdown and natural disasters at home. The economy will continue to expand moderately as the ripple effects from slowing global growth on domestic demand will be limited, he added.

The central bank also cut its economic assessment for three of the country’s nine regions but remained cautiously optimistic that domestic demand could help offset a slowdown in exports and manufacturing.

All of the regions kept their assessment on private consumption unchanged, despite fluctuations in spending patterns around the Oct. 1 sales tax hike, likely backing the BOJ’s rosy view that solid domestic demand will offset external headwinds.

The BOJ’s optimism is likely to allow it to justify keeping monetary policy steady for the time being.

“All nine regions reported that their economies were either expanding or recovering. Domestic demand continued on an uptrend, with a virtuous cycle from income to spending operating in both the corporate and household sectors, the central bank said in the regional report on Wednesday.

The downgrades for the northern region of Hokuriku, the central region of Tokai and the western area of Chugoku were due to weak exports and output caused by the global slowdown, which has slowed their rate of expansion.

Demand for machine tools from the United States and China appeared to be bottoming out, adjustments in car output and inventories in China were making steady progress, and production of IT-related goods was recovering, it said.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com