Bank of Japan Governor Haruhiko Kuroda said worries have receded over the risks that an expected U.S. interest rate hike might upset global markets or trigger sharp capital outflows from emerging economies.
He also said Japan's inflation can accelerate toward the central bank's 2 percent target even if economic growth remained weak as long as job markets continued to tighten, suggesting that no immediate monetary easing was forthcoming.
"The broad price trend is improving steadily and I don't see any big problem for now. Inflation expectations, which play a key role in achieving our price target, remain stable as a whole," Kuroda told reporters after meeting with business leaders in Osaka, western Japan, on Monday.
Kuroda, however, reiterated his readiness to expand the BOJ's massive stimulus program further if the central bank is in danger of missing its price target, to conclusively break free of a long phase of debilitating deflation.
Japan's core consumer prices fell 0.1 percent in the year to August, marking the first annual drop since the central bank deployed its massive stimulus program more than two years ago.
The BOJ has held steady since expanding its stimulus program in October last year, but the lack of inflation and weak economic growth has kept alive some expectations that it will increase the stimulus doseage again as early as next month.
Kuroda was upbeat on the outlook for global growth, saying that the strength in advanced economies will make up for weakness in China and other emerging nations.
The fact the U.S. Federal Reserve was eyeing an interest rate hike in the near future showed the strength of the U.S. economy, which was positive for the global economy, Kuroda said.
"Fears that U.S. rate normalization would trigger a massive, sharp outflow of funds from emerging economies and disrupt the global economy appear to be receding somewhat," he said.
WEAK YEN A DOUBLE-EDGED SWORD
Japan's economy shrank in April-June and analysts expect only a modest rebound in the current quarter, as China's slowdown and rising import costs hurt exports and household spending. Some analysts even project another contraction in July-September, tipping the economy into a technical recession.
Kuroda said it was still unclear whether Japan suffered another contraction in July-September and stressed that as long as job markets continued to tighten, companies will gradually raise wages and help boost private consumption.
"More companies appear to be able to pass rising costs onto sales prices. Households have started to accept such price hikes on prospects of rising wages," he said.
Turning to currency matters, Kuroda said that while a weak yen helped boost exports and manufacturers' profits, it also hurt smaller firms and households by increasing import costs.
"Exchange rates ought to move in a way reflecting economic fundamentals. I think that understanding is shared by policymakers of Group of Seven leading economies," Kuroda said.
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