Bank of Japan Governor Haruhiko Kuroda said lower energy costs may push consumer prices into negative territory but it won't derail a pick-up in inflation as the economy recovers, signaling that he sees no immediate need to expand stimulus.
Nearly two years into his tenure, Kuroda continues to wrestle with weak prices that have kept alive expectations the central bank will ease again this year to reach its 2 percent inflation target.
The BOJ maintained its massive stimulus program on Tuesday but offered a slightly more downbeat view on prices, saying inflation will hover around zero for the time being.
"Depending on oil price moves, we can't rule out the possibility that core consumer prices will fall slightly year-on-year," Kuroda told a news conference.
But he said prospects of improving wages and economic growth will underpin inflation expectations.
"For now, I don't think the underlying slowdown in inflation, driven largely by sharp falls in oil prices, will immediately affect the broad price trend," he said.
His remarks echo a concerted signal BOJ policymakers have sent to investors that while they expect inflation to grind to a halt in coming months, they see no need to respond unless the price weakness hits inflation expectations.
"There's absolutely no change to our stance of aiming to achieve our 2 percent inflation target at the earliest date possible with a time frame of roughly two years," said Kuroda, who will mark two years in office on Friday.
The BOJ has stood pat on policy since expanding its massive stimulus program in October last year to prevent slumping oil prices, and a subsequent slowdown in inflation, from delaying a sustained end to deflation.
Many analysts, however, remain unconvinced that Japan will see inflation accelerate so quickly.
"Given that Japanese stocks are doing well, there's no need to ease policy now," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management.
"However, the BOJ will probably have to push back its two-year time frame when it updates its forecasts in October, which will raise questions about monetary easing."
At the news conference, Kuroda faced tough questions about the BOJ's pledge — made in April 2013 — that it will hit the price target in two years. One reporter urged him to admit the deadline has become impossible to achieve.
Kuroda emphasized that inflation would turn up in the latter half of the year as companies raise wages and the effects of last year's oil price falls fade.
"I don't think achievement of the price target has become particularly difficult," he said.
On Wednesday, Japan's biggest firms will announce wage plans following annual talks with labor unions, the results of which will be key to the success of Premier Shinzo Abe's push to drive Japan sustainably out of deflation.
The BOJ hopes companies that reaped huge profits from a weak yen will boost regular pay and help lift consumption.
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