(More Bank) – Bank of Japan Governor Haruhiko Kuroda said he was still seeking to maintain an inflation rate of 2 percent, after the government expressed support for a more flexible approach to the goal, which has not been touched for a decade.
Japan must reach 2% to achieve a self-sustaining economic growth cycle, where rising corporate profits and rising consumption of wages and investment, said Kuroda after a meeting of the board of directors. BOJ administration, when decision-makers have maintained the recovery plan while degrading their economic evaluation.
"The 2% target is a decision that the Board of the Bank of Japan has decided itself," Kuroda said. "We believe that it is necessary to make it a reality to carry out the BoJ's mission of stabilizing prices."
As the political effects multiply after six years of recovery and the debate on price objectives is growing, the BoJ is called to rethink its commitment to 2%, which many economists consider unrealistic. The central bank has repeatedly postponed the planned date to achieve this goal, which was predicted by Kuroda within about two years.
Finance Minister Taro Aso joined the fray of the price debate this week, saying things had changed since the BoJ and the government agreed on the goal in 2013. " You have to think about the possibility that things go wrong if you focus too much on 2 percent, "Aso said.
"This policy advice is unlikely to please most central bank governors," said Shaun Roache of S & P Global Ratings in Singapore. "It could undermine already weak inflation expectations and make it even harder for central bankers to reach their inflation goals.
The BOJ's main price gauge currently stands at 0.8% – and some economists plan to zero it later this year – the 2% price target could force Kuroda to step up stimulus measures .
Although most central bank observers still expect the BoJ to stay the course, a growing minority believes the next move will be a more accommodating one.
Earlier Friday, the central bank had decided to maintain its key rates and its asset purchases, as provided by the 46 experts interviewed by More Bank. He downgraded his assessment of exports, industrial production and overseas economies.
The slowing growth in China, the US-China trade war and a disruptive Brexit could still weigh more heavily on the Japanese economy, which is dependent on exports.
The central bank hopes to overcome the current economic weakness, but the difficult situation will put it in a more difficult position by extending its fight to 2%, said Naomi Muguruma, senior economist at Mitsubishi UFJ Morgan Stanley Securities. "In the longer term, the BOJ will probably have to reconsider what is the best policy framework, as it will take a long time to reach the price target," she said.
What More Bank Economists Say
"The slowdown in global growth is making life more difficult for the Bank of Japan, as the downgrade of its economic assessment acknowledges, but we believe it will aim to overcome any economic turmoil in its current framework."
–Yuki Masujima, economist in JapanClick here to display the article
– With the help of Kurumi Mori, Paul Jackson, Gearoid Reidy, Go Onomitsu, Tan Hwee Ann, Urabe Emi, Shoko Oda, Lily Nonomiya, Masahiro Hidaka and Enda Curran.
To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@More Bank.net, Yuko Takeo in Tokyo at ytakeo2@More Bank.net, Masahiro Hidaka in Tokyo at mhidaka@More Bank.net
To contact the editors responsible for this story: Brett Miller at bmiller30@More Bank.net, Henry Hoenig
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