(Mainichi: January 1, 2015 – p. 1)

By Misako Yanagihara

Speaking to the Mainichi Shimbun, Bank of Japan Governor Haruhiko Kuroda stressed that the central bank remains committed to achieving the 2% inflation target by around 2015.

“If we relax our commitment just because of the difficulty of realizing the 2% goal, we won’t be able to achieve it,” Kuroda said. He also noted that the central bank will make the necessary adjustments if it strays from the path toward achieving the goal. “There are many ways to fine-tune,” he said, hinting at the possibility of further monetary easing using a new method.

Kuroda said that the central bank will judge that the inflation target has been achieved when 2% inflation in consumer prices along with price increase projections by consumers and businesses becomes common. But with many market observers forecasting that cheap crude prices and a delayed recovery in consumption may hamper efforts to achieve the target over the next year or two, the BOJ may come under pressure to implement further monetary easing.

The BOJ decided at the end of October 2014 to expand its asset-purchase program, as the pace of price hikes slowed due to declining oil prices. Though cheap oil prices are expected to stimulate the economy in the mid-to-long run, they work to hold down prices in the short term. Kuroda gave the following account of the bank’s out-of-the-blue decision: “Doubt had long been cast on the BOJ’s commitment to ending deflation. If we had not taken action at the end of October, the market could have concluded that we had relaxed our commitment and would never be able to achieve the 2% inflation target.”

At the same time, he rejected the option of changing the target readily.

Kuroda added that projected price increases, along with the consumer price index, must stay at 2% to achieve the inflation target. He indicated that the BOJ will continue its easy money policy until businesses and consumers overall acknowledge that the inflation rate will continue to hold steady at around 2% in the future.

Kuroda emphasized that the additional monetary easing has produced some results, pointing to a wage increase agreement reached by the government, industry, and labor unions. “Businesses and households are acting by taking into account steady price increases,” he said.

Meanwhile, he urged the government to increase the sales tax in April 2017 as scheduled. “The BOJ is not tasked with rebuilding finances, drawing up growth strategies, and carrying out structural reforms,” he said. “The division of roles is very clear and the government must take on its share of the responsibility.”

With the monetary easing accelerating the drop in the value of the yen and rising import prices hurting many households and smaller businesses, Kuroda said: “Monetary easing is not solely responsible for currency exchange.” He stressed that fighting deflation is a top priority, though the BOJ is keeping a close eye on the adverse impact of the weak yen. (Slightly abridged)