Exclusive: Bank of Japan's Nakaso warns market against betting on more easing

Fri Apr 10, 2015 6:27am EDT
 
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By Leika Kihara and Sumio Ito

TOKYO (Reuters) - Bank of Japan Deputy Governor Hiroshi Nakaso has tempered market expectations that the bank will expand its stimulus program later this month, saying a cut in its inflation forecast would not be enough to justify more monetary easing.

Nakaso, one of Governor Haruhiko Kuroda's two deputies, said that while slumping oil costs have pushed inflation back to zero, rising wages and a steady economic recovery will underpin a long-term rise in prices.

"What's important is the underlying trend of inflation dynamics, which are steadily improving," Nakaso told Reuters in an interview on Thursday, his first with non-Japanese media in nearly a year.

"As long as there's no change to the underlying trend of inflation, additional monetary easing is unnecessary."

Expectations that the BOJ might add to its stimulus program at a rate meeting on April 30 have helped send Japanese shares to a 15-year-high.

But Nakaso's remarks are the strongest denial to date by a senior BOJ official about the need for immediate policy action. They also show that Nakaso, who rarely speaks in public, shares Kuroda's conviction that Japan is on track to hit the bank's 2 percent inflation target in about a year from now.

The BOJ is under pressure to cut its forecast that inflation will hit 2 percent within the current fiscal year at a twice-yearly review of its projections on April 30, due to the impact of falling oil prices.

But while acknowledging that inflation was moving away from the BOJ's target, Nakaso said there were clear improvements in inflation expectations such as the rising number of firms promising wage hikes, including for temporary workers.   Continued...

 
Bank of Japan's (BOJ) new Governor Haruhiko Kuroda (C) and his new deputies Hiroshi Nakaso (R) and Kikuo Iwata pose for photos after a news conference at the BOJ headquarters in Tokyo March 21, 2013.   REUTERS/Toru Hanai