July 20, 2017 / 6:49 AM / 4 months ago

HIGHLIGHTS-BOJ Governor Kuroda comments at news conference

TOKYO, July 20 (Reuters) - The Bank of Japan kept monetary policy steady on Thursday but once again pushed back the timing for achieving its ambitious inflation target, reinforcing views that it will lag well behind other major central banks in scaling back its massive stimulus programme.

Following are comments from BOJ Governor Haruhiko Kuroda at his post-meeting news conference:

ON INFLATION

“Reflecting underlying weakness in price growth, medium- and long-term inflation expectations lack momentum. But we don’t expect this to last forever. There are limits to how much companies can absorb (rising costs) through streamlining ... As price hikes gradually broaden, inflation expectations will heighten steadily. The economy’s momentum for achieving 2 percent inflation remains intact.”

”The current policy framework is a very flexible one that can respond to economic, price and financial developments at the time. It’s also a highly sustainable framework. Once inflation expectations heighten, real interest rates fall further and the stimulus effect of our policy heightens.

“The momentum for achieving our price target remains intact, so the effect of our policies will heighten ahead.”

NO NEED TO EASE POLICY FURTHER NOW

“European and U.S. central banks have also repeatedly delayed the projected timing for hitting their price targets. Part of the reason was the sharp decline in oil prices, along with other factors beyond the central banks’ control. It’s unfortunate that we had to push back the timing many times, but our forecasts must be an appropriate one that reflects economic and price developments at the time.”

“It’s not as if we have run out of policy tools. We think the momentum for hitting our price target remains intact and can be sustained under the current policy framework.”

“With the momentum for hitting 2 percent inflation sustained, I don’t see the need to conduct another comprehensive assessment of our policy framework ... We also see no need now to ramp up stimulus.”

NO OVERHEATING SEEN

“If the economy overheats, that would obviously push up long-term interest rates and we could allow them to do so. But inflation is undershooting our forecasts even as the economy overshoots our projections. I don’t think there is a huge risk now of an overheating of growth.”

ON THE GOVERNMENT‘S LONG-TERM FISCAL CONSOLIDATION GOALS

“Japan must first aim to improve its budget-balance, then seek to gradually lower the debt-to-GDP ratio. I think that’s what the government is aiming to do now, which is a reasonable idea.”

ON CRITICISM BOJ‘S BUYING OF ETFs IS DISTORTING MARKETS, CORPORATE GOVERNANCE

“The BOJ is buying exchange-traded funds (ETFs) as part of its monetary policy framework and to affect the stock market’s risk premium. It is not buying to commit to a certain stock price level or price moves.”

“The BOJ is buying ETFs but the scale is very small compared with the total market capitalisation of the Tokyo Stock Exchange. It is also buying ETFs through trust banks, which are engaging in appropriate corporate governance ... The BOJ...has no intention to take steps that hamper appropriate corporate governance.”

RESPONSE TO FURTHER DELAYS IN PRICE TARGET

“We never intentionally compile optimistic forecasts. We always compile them based on underlying economic and price moves. It’s true that despite such efforts, some of our projections proved to be wrong. But there were some common factors that also affected the projections of European and U.S. central banks as well as the IMF.”

“There were also factors unique to Japan, such as the fact that inflation expectations are affected more strongly by underlying price moves. We took that into account when making a thorough analysis of our policies last September.”

“Having said that, it’s not true that just because our forecasts proved to be wrong we lose (the public‘s) trust in our policies.” (Reporting by Leika Kihara; Editing by Biju Dwarakanath)

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