Bank of Japan deputy governor signals readiness to ease

Thu Jan 31, 2013 3:27am EST
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By Leika Kihara and Kaori Kaneko

NAGASAKI/TOKYO, Japan (Reuters) - A Bank of Japan deputy governor has flagged the strongest signal yet that it will boldly implement more stimulus if needed to achieve the bank's new 2 percent inflation target.

Deputy Governor Hirohide Yamaguchi shrugged off global criticisms that the central bank was intentionally weakening the yen by monetary easing, stressing that it never deliberately targets exchange rates.

"I won't rule out the chance of our easing indirectly affecting currency moves and weakening the yen. But we don't take policy steps for the purpose of directly affecting exchange rates," he told a news conference after meeting business executives in Nagasaki, southern Japan, on Thursday.

His remarks came after Prime Minister Shinzo Abe waded into the growing global debate about currency wars, saying Japan's fiscal and monetary stimulus measures are aimed at beating deflation, not at manipulating currency movements.

Abe's pledge of bold fiscal and monetary stimulus has helped push down the yen, supporting the export-reliant economy and nudging Japan's Nikkei share average to a 33-month high.

Yamaguchi, one of the central bank's two deputy governors whose terms expire in March, offered an upbeat outlook for Japan's economy, saying it is likely to start a moderate recovery around mid-year, following strong signals from the United States and China.

Factory output in December rose at the fastest pace in a year and a half and firms expect further gains, data showed on Thursday, raising hopes that a recovery may be already underway.

Policymakers will welcome an improvement in the economy, but the bank will likely stay biased toward further easing as Abe and some of his party's legislators keep up the pressure on the central bank with threats to revise the law guaranteeing its monetary policy independence.   Continued...

A man walks past the Bank of Japan headquarters building in Tokyo October 30, 2012. REUTERS/Yuriko Nakao