Bank of Japan Governor Haruhiko Kuroda pledged to forge on with very accommodative monetary policy as he warned that his inflation target remains distant and the current pace of growth in the world’s third-largest economy looks unsustainable.
Speaking in an interview with Bloomberg in Jackson Hole, Wyoming, Kuroda also said the BoJ’s yield-curve control program has been working quite well and that he doesn’t see a need to adjust it at present. He added that the BoJ may be able to control rates while buying fewer Japanese government bonds and that the market is still “functioning quite well.”
The BoJ chief, who joined Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi at the mountain retreat for an annual gathering of monetary policy makers, is grappling with an economy that’s in its longest run of expansion in more than a decade but is still failing to generate significant wage gains and a healthy level of inflation.
“I think 4 percent growth is excellent but we don’t think 4 percent growth can be sustained. Around 2 percent growth is likely,” Kuroda told Bloomberg Television’s Kathleen Hays. “I think for some time we have to continue this extremely accommodative monetary policy.”
While Yellen and Draghi are also contending with growth and inflation that are somewhat out of sync, Kuroda views the problem in Japan as more serious.
“The economic and price situation in the US is much, much better than the situation in Japan,” said Kuroda. He noted that Japanese businesses and labor unions still exhibit a “deflationary mindset,” which is crimping price gains and has seen the BoJ delay the projected timing for reaching its 2 percent price target six times.
“Kuroda is saying that he won’t respond to a pick-up in just one quarter,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG and a former BoJ official. “The economy is doing better than they noted in the outlook report in July and that could fuel debate within the BoJ that they might be able to raise their inflation forecasts. But he is containing this.”