May 14, 2020 / 4:59 AM / 16 days ago

UPDATE 1-BOJ's Kuroda defends elusive inflation goal despite pandemic headwinds

* BOJ must guard against risk of financial instability - Kuroda

* Adds hitting price target will take time due to shock

* Feasibility of price goal in doubt as pandemic hits growth (Recasts with quotes, context)

By Leika Kihara

TOKYO, May 14 (Reuters) - Bank of Japan Governor Haruhiko Kuroda said there was no change to its target of getting inflation to 2%, despite headwinds from the coronavirus pandemic that is hurting the economy and stoking fears of a return to deflation.

He also said the central bank must guard against the risk that the pandemic, if prolonged, could threaten the country’s banking system through increases in corporate bankruptcies.

“As the economy worsens, Japan’s banking system is coming under increasing stress. We need to be vigilant more than before to such developments,” Kuroda said in a seminar on Thursday.

Kuroda said it would take “quite a long time” for Japan to see inflation reach his 2% target because the economy was suffering a huge shock.

But once the impact of the pandemic subsides, he said, the economy is likely to gradually recover thanks to pent-up demand at home and abroad, as well as the effect of massive stimulus measures taken worldwide.

“There’s no change to our stance of seeking to achieve our price target,” he said.

Kuroda’s remarks came amid heightening market doubts over the feasibility of sticking to an inflation target that has remained elusive since he became governor in 2013. Years of massive money printing have failed to fire up prices.

In latest quarterly projections made in April, the BOJ said it expects inflation to fall short of its target for another three years.

The world’s third-largest economy is on the cusp of a deep recession as the pandemic has forced households to stay home and businesses to shut down. Japan has reported close to 16,000 coronavirus infections and over 650 deaths.

Nationwide core consumer prices rose 0.4% in March from a year earlier. Consumer prices in Tokyo, considered a leading indicator of nationwide trends, fell for the first time in three years in April, increasing worries the pandemic could tip Japan back into deflation.

The BOJ ramped up stimulus for the second straight month in April, focusing on steps to ease corporate funding strains as slumping sales prodded firms to hoard cash. (Reporting by Leika Kihara; editing by Chris Gallagher and Kim Coghill)

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