TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said maintaining the current easy monetary conditions is appropriate because prices are lagging improvements in the economy and remain distant from the central bank’s inflation target.
Kuroda, in a speech on Wednesday, reiterated the BOJ’s growing optimism on the economic outlook due to rising exports, higher factory output, and a tightening labor market.
Kuroda’s remarks came after minutes of the central bank’s April 26-27 meeting showed policymakers see no problem if government debt purchases fall below its guidance for market operations.
“Our economy is on firmer footing, but we are still distant from our 2 percent inflation target,” Kuroda said.
“It is appropriate to keep monetary conditions easy with our current market operations framework.”
The BOJ kept monetary policy on hold at the meeting in April and offered its most optimistic assessment of the economy in nine years.
The BOJ also retained a loose pledge to buy government bonds so its holdings increase at an annual pace of 80 trillion yen ($719 billion), contrary to market speculation the guidance could be removed because the BOJ is trying to taper policy.
Since then, Kuroda has repeatedly signaled that he is not contemplating an early exit, and that the pace of government debt purchases could rise again as easily as it has fallen recently.
The BOJ has reduced the pace of government bond purchases in recent months, which if maintained would lead to an annual increase of only 60 trillion yen.
However, Kuroda’s reassurances have tamed speculation that the BOJ is about to follow the U.S. Federal Reserve in exiting quantitative easing.
Kuroda, on Wednesday, offered an optimistic assessment of capital expenditure and corporate profits, highlighting the BOJ’s growing confidence in the economy.
Japan’s output gap is moving into positive territory, but this has been slow to translate into higher consumer prices, Kuroda said.
At its most recent meeting on June 15-16 the BOJ upgraded its assessment of consumption but kept policy on hold.
Reporting by Stanley White; Editing by Shri Navaratnam