BOJ Kuroda stresses that inflation is a risk for the Japanese economy

Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a news conference at the BOJ headquarters in Tokyo, Japan July 30, 2019. REUTERS/Kim Kyung-Hoon/File Photo

TOKYO, June 3 (Reuters) – Rising prices of basic necessities could hurt consumer confidence, Bank of Japan Governor Haruhiko Kuroda said on Friday, suggesting rising inflationary pressures are emerging as a risk for the country’s fragile economy.

Core consumer inflation in Japan rose 2.1% year-on-year in April, exceeding the central bank’s 2% target for the first time in seven years, mainly due to the surge in fuel and raw material prices. Read more

Kuroda said it is undesirable for prices to rise too much when household income growth remains weak.

“Prices are rising especially for goods that households buy frequently, such as gasoline and food,” Kuroda told parliament. “These kinds of price increases could hurt consumer confidence, so we need to watch developments carefully.”

Kuroda has repeatedly stated that the BOJ will not reverse its massive monetary stimulus, as the recent rise in inflation was mainly driven by commodity costs and likely temporary.

“What the BOJ hopes to achieve is a positive cycle in which prices gradually rise in tandem with strong economic growth and wage increases,” Kuroda said.

“It is important to create an economic environment where wages can increase further,” he added, stressing the need to maintain an ultra-loose monetary policy.

In the same parliamentary session, Prime Minister Fumio Kishida said government subsidies, such as those aimed at capping gasoline prices, were keeping inflation in Japan well below that of Western economies.

“While measures to ease the pain of rising prices are crucial, it is also important to ensure increased household incomes,” Kishida said.

Kishida said there was no need to change a joint statement agreed between the government and the BOJ in January 2013, in which the central bank pledged to achieve 2% inflation with an easy policy. Read more

Some opposition lawmakers have blamed the BOJ’s ultra-low interest rate policy for driving up the cost of living for households and called for revising the joint statement to give the central bank leeway to reduce stimulus.

Reporting by Leika Kihara; Editing by Jacqueline Wong and Sonali Desai

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