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BOJ's Kuroda says China slowdown unlikely to hit Japan exports much

[NEW YORK] China's economic slowdown should not harm Japan's exports very much in coming years, and falling oil prices will not stop the Bank of Japan from hitting its inflation target, BOJ Governor Haruhiko Kuroda said on Wednesday.

Mr Kuroda said China's economy is likely to slow although he predicted growth in its gross domestic product will remain at 6-7 per cent this year and next. "Already exports to China have been affected, but I do not think that Japan exports in coming years will be (very) negatively affected," he told a seminar hosted by the Japan Society in New York.

That is "partly because China will maintain 6 to 7 per cent growth and Japanese capital goods are... quite competitive." Mr Kuroda said China's monetary easing is an appropriate step to mitigate any impact on its economy, adding that some market players have become "too pessimistic" about the Chinese economy given its growth is "still quite robust".

On US monetary policy, Mr Kuroda said that an interest rate hike by the Federal Reserve - whenever it happens - would be a vote of confidence in the US economy, and a positive for the global and Japanese economies.


Japan's economy shrank in April-June as exports slumped and consumers cut spending.

China's economic slowdown, which recently sparked a global stock market selloff, has increased the odds that any rebound in Japan's growth will be modest.

Some market players thus expect the BOJ to expand stimulus later this year.

Mr Kuroda said the BOJ stands ready to ease monetary policy further if needed, stressing that "many options" were available.

But he maintained his optimism that Japan can hit the BOJ's inflation target without additional stimulus, stressing that oil price falls will only impact overall prices temporarily.

"We think that the 2 per cent inflation target would be achieved with the current QQE," he said. "So at this stage we have no concrete proposal for further accommodation."

Analysts at Barclays Capital said Mr Kuroda's remarks show the BOJ has not changed its upbeat economic and price assessments, and appears in no mood to act at least until April next year. "In 2015, we believe any stimulus is more likely to come in the form of a supplementary budget" of around 3-5 trillion yen (S$35-S$59 billion), they wrote in a research note.

The BOJ deployed a massive stimulus, dubbed quantitative and qualitative easing, or QQE, in April 2013 and expanded it in October 2014 to accelerate inflation to 2 per cent.

But inflation has ground to a halt due to soft household spending and slumping oil, keeping the BOJ under pressure to expand monetary support.


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