Kuroda signals confidence on easing with no G20 backlash on yen

[ISTANBUL] Bank of Japan Governor Haruhiko Kuroda said Group of 20 nations didn't criticize his monetary policy or discuss the yen's weakening, signaling confidence to proceed with easing that has driven down the currency.

"I felt it's well understood internationally that Japan will make positive contributions not only to its own economy but to the global economy if the nation ends deflation and achieves 2 per cent price stability through quantitative and qualitative monetary easing," Mr Kuroda told reporters on Tuesday in Istanbul, where he attended a meeting of G20 finance chiefs and central bank governors. "So there was no criticism at all" of the easing, he said.

The comments reinforce the idea that Kuroda's record stimulus fits with positions such as US Treasury Secretary Jacob J Lew's point that G20 counterparts shouldn't resort to currency devaluations to spur economic growth. Lew said last week that Japan's policies resulting in a weaker yen don't qualify as "unfair." "It's hard for G20 nations to criticise Japan now," Masamichi Adachi, senior economist at JPMorgan Chase & Co and a former central bank official, said before Mr Kuroda's remarks. "The BOJ can justify its aggressive monetary policy as they try to escape from deflation even as the yen is the key channel they are trying to influence." The G20 communique in Istanbul on Tuesday reiterated a two-year pledge not to resort to currency devaluations to spur growth, while saying that "current economic conditions require accommodative monetary policies in some economies."

The document cited Japan's "slow" recovery, after the world's third-largest economy slipped into a recession last year following an increase in the sales tax to 8 per cent in April. The slump prompted Abe to postpone another planned increase until 2017.

Mr Kuroda in October expanded already-record stimulus, adding downward pressure on the yen, which has weakened the most against the dollar among 16 major currencies since Prime Minister Shinzo Abe took office in 2012.

The currency is forecast to weaken further as US monetary policy moves toward tightening and the BOJ extends stimulus. The median estimate in a Bloomberg survey of more than 50 strategists is for the yen to drop to 122 per dollar in June, before reaching to 125 by year-end. It traded at 119.38 at 1.15 pm on Tuesday in New York.

"The G20 has confirmed that each central bank can use appropriate policy to fulfill its mandate for price stability and there is no change in that stance," Mr Kuroda said.

Mr Kuroda has repeatedly said the BOJ is targeting 2 per cent inflation, not foreign exchange rates, helping head off potential criticism of policies that have pushed the yen lower.

Consumer prices excluding fresh food rose 2.5 per cent from a year earlier in December. Stripped of the effect of the sales- tax increase, core inflation - the Bank of Japan's key measure - was 0.5 per cent, below its 2 per cent target.

"I expect we will generate a positive economic cycle going forward," Finance Minister Taro Aso told reporters Tuesday. An economic package in December and the government's various measures including talks with business lobbies and labor unions will lead to wage growth as companies enjoy record profits, he said.

BLOOMBERG