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BOJ's Kuroda dismisses calls to go slow in hitting inflation target

Haruhiko Kuroda, president of Asian Development Bank was part of a group of panel speakers, (moderated by deputy editor and foreign editor of the Straits Times, Warren Fernandez), that spoke on the topic of Asean Integration in the Asian Landscape at the Asean Business and Investment Summit today in Suntec Singapore today, 17 November 2007.

[NAGOYA] Bank of Japan's governor has dismissed calls from critics to go slow on hitting the central bank's 2 per cent inflation target and stressed the need to take "whatever steps necessary" to achieve its ambitious consumer price goal.

Various policymakers in Japan, including BOJ board members, have recently warned that pushing up prices too quickly could hurt consumption and have called for the central to give itself more time to achieve its inflation target.

However, BOJ Governor Haruhiko Kuroda on Monday reinforced the need to reinflate prices as a central bank priority. "If the BOJ were to move slowly toward achieving the price target, wage adjustments would also be slow," Kuroda told business leaders in the central Japan city of Nagoya, home to auto giant Toyota Motor Corp. "In order to overcome deflation - in other words, break the deadlock - somebody has to show an unwavering resolve and change the situation. When price developments are at stake, the BOJ must be the first to move." Japan relapsed into recession in July-September as slow wage growth and China's slowdown hurt consumption and exports.

Consumer prices have also kept sliding due largely to the effect of falling energy costs, keeping the BOJ under pressure to expand its massive stimulus programme to meet its pledge of accelerating inflation to 2 per cent by around early 2017.

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Kuroda said the recent weakness in exports and output was unlikely to hurt companies' investment appetite for now, as robust domestic demand has made the economy resilient to external shocks.

But he warned that the slowdown in emerging markets, if prolonged, could hurt business sentiment and discourage companies from boosting capital expenditure. "We'll ease policy or take whatever steps necessary without hesitation if an early achievement of our price target becomes difficult," he told a news conference later on Monday.

The BOJ has recently joined government calls for firms to use their huge cash-pile to boost wages and investment, so far with limited success.

While the BOJ cannot directly influence wages, it can help push them up by reinforcing its commitment to achieve its price target, Kuroda said. "If Japan were to emerge from deflation and see inflation hit 2 per cent, it's important that companies start preparing for that moment by investing more on human resources and capital expenditure," he said.

He also said that while monetary policy does not directly target currency rates, the BOJ will closely monitor yen moves because of their big impact on Japan's economy. "What's most desirable is for exchange rates to move stably reflecting economic and financial fundamentals," Kuroda told business leaders.