TOKYO - Bank of Japan Governor Haruhiko Kuroda told Prime Minister Shinzo Abe he is prepared to take whatever steps needed to achieve the central bank's 2 per cent inflation target if it comes under threat.
In a face-to-face meeting about the economy, however, Kuroda said he received no particular instructions from Abe. Kuroda said he discussed the economy after a sales tax increase in April and told Abe that Japan's economic momentum remains intact.
Kuroda's optimism about the economy suggests he sees no need for immediate action, but the meeting with Abe could fuel speculation the BOJ will ease policy again sometime in the future as another sales tax increase is scheduled for next year.
"I told the prime minister we will steadily continue with qualitative and quantitative easing launched in April last year to achieve our 2 per cent price goal," Kuroda told reporters after Wednesday's meeting with Abe.
"If that goal becomes difficult to achieve we will not hesitate to take whatever steps necessary, including additional monetary easing in adjusting policy. But at the moment, the positive cycle in the Japanese economy is continuing."
The first such meeting between the two since April comes ahead of Abe's crucial decision on whether to proceed with a second sales tax hike to 10 per cent planned for October next year.
The two, who meet one-on-one regularly about once every quarter, likely discussed a slew of recent soft economic data. Kuroda did not offer much details, except to say he told Abe that the global economy is on the recovery path.
Some economists worry that relations between the government and the BOJ could be strained if an economic rebound from a sharp second-quarter contraction proves to be much weaker than expected.
The April's sales tax hike to 8 per cent from 5 per cent triggered the deepest slump in the second quarter since the 2009 global financial crisis, casting doubt about the BOJ's conviction the economy can rebound without further near term stimulus.
"If the economic recovery falters, the government may consider compiling an extra budget to deploy fiscal stimulus and in doing so, it may call on the BOJ to act, too," said Junko Nishioka, chief Japan economist at RBS Securities.
"But the BOJ had made it clear that it won't yield to pressure after having deployed massive stimulus in a single blow last April. Unless economic or market conditions deteriorate sharply, I expect the BOJ to stand pat," she said.
The BOJ last April pledged to double base money via aggressive asset purchases to accelerate consumer inflation to 2 per cent in roughly two years.
Analysts have said the weak performance following the sales tax hike in April will keep the BOJ and Abe's government under pressure to expand fiscal and monetary stimulus in order to reflate the long-moribund economy.