Bank of Japan's Kuroda projects economic recovery to pre-Covid levels by early 2022

[TOKYO] Japan's economy will continue to recover and could reach levels seen before the coronavirus pandemic by the end of this year or early in 2022, Bank of Japan Governor Haruhiko Kuroda said on Thursday.

With consumption weak and inflation well below its 2 per cent target, however, the BOJ will maintain its massive stimulus regardless of the new government's policies, Mr Kuroda said.

"Whatever fiscal, regulatory or any other policies the new government pursues, the BOJ will continue to maintain extremely accommodative monetary policy in order to achieve its 2 per cent price stability target as soon as possible," Mr Kuroda said.

"This is our mandate and that mandate is unlikely to change," he said in an online seminar hosted by the European Central Bank on Wednesday, or early on Thursday Tokyo time.

Japan's ruling party anointed former foreign minister Fumio Kishida as its new leader on Wednesday, ensuring he will become prime minister within days.

Mr Kuroda offered an upbeat view on Japan's economy, saying that steady progress on vaccinations and an end to state-of-emergency curbs to combat the pandemic are likely to lead to a recovery in consumption in the coming months.

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"All in all, consumption, which has been quite weak, will gradually step up," Mr Kuroda said.

The corporate sector is also enjoying a "firm situation" that is translating into a pick-up in capital expenditure, Mr Kuroda said, brushing aside concerns that supply bottlenecks could hit output at Japanese manufacturers.

Asian factory shutdowns caused by the pandemic are likely temporary and could be fixed in the coming months, he said.

When asked about his biggest concern, Mr Kuroda said his key interest was the timing for when the economy will fully recover and how fast it will grow ahead.

"In coming years, we must achieve our 2 per cent price stability target. That is true. But at this moment, (achieving) economic recovery and faster growth are the most important challenges faced by us," he said.

Under a policy dubbed yield curve control, the BOJ guides short-term interest rates to -0.1 per cent and long-term rates to around zero as part of efforts to achieve its 2 per cent inflation target.

Contrary to other advanced economies fretting about the risk of higher inflation, consumer inflation in Japan has hovered around zero as weak consumption keeps companies from passing on rising input costs to households via price hikes.

REUTERS