BOJ warns oil prices may affect inflation target

TOKYO • Bank of Japan (BOJ) governor Haruhiko Kuroda has warned that meeting his 2 per cent inflation target may be delayed further if the oil-price falls persist.

But he emphasised that the central bank will not expand stimulus again unless oil-price falls last long enough to discourage companies from raising prices and hurt a broad uptrend in inflation.

Japan's central bank held off expanding its record 80 trillion yen (S$888 billion) annual asset-buying scheme following a two-day meeting. But the country's near-zero inflation rate is far below the bank's ambitious 2 per cent target, a cornerstone of efforts to boost the world's No. 3 economy and conquer years of deflation.

"We would consider adjusting policy if oil rates affect price trends and impact on underlying price movements," Mr Kuroda told a news conference yesterday.

He also remained upbeat on the outlook, despite growing signs that the economy may have contracted in the April-June quarter.

"The recent weakness in exports and output are temporary," he said, adding that household spending will emerge from the doldrums as wages keep rising.

"More companies are raising the prices of their goods and services, which shows the underlying trend of inflation is improving," he said.

The BOJ expects inflation to hit its 2 per cent target by around September next year as improvements in the economy prompt companies to raise wages and prices.

Analysts doubt price growth will accelerate so quickly with inflation having ground to a halt because of soft consumption and the effect of last year's oil-price falls.

Gross domestic product data, due to be released on Aug 17, is expected to show that Japan's economy shrank at an annualised rate of 1.9 per cent in the second quarter.

While growth is expected to rebound in the current quarter, some analysts warn that sluggish demand in China and tame wage growth at home will keep any pick-up modest.

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 08, 2015, with the headline 'BOJ warns oil prices may affect inflation target'. Print Edition | Subscribe