 "Bank of Japan Governor Haruhiko Kuroda")
Bank of Japan, or BOJ, Governor Haruhiko Kuroda played down the prospect of market turmoil causing Japanese companies to pare back capital spending and wage increases, and expressed confidence in the underlying pace of inflation a week before he decides on monetary policy.
"At this stage, we don't think the current market situation has been affecting corporate behavior unduly," Kuroda said in an interview with Bloomberg in Davos, Switzerland, on Friday. "But, as I said, the market is the market, and markets could affect the real economy - so we carefully watch."
Kuroda, 71, was speaking ahead of one of the thorniest policy meetings since he took the helm of the BOJ almost three years ago. Waning inflation expectations, sliding oil prices and a reversal in the yen's declines have put pressure on the BOJ to expand an already-record stimulus program. Yet with concerns about China dominating the focus of financial markets, the danger is that further action by Japan may have limited impact.
The BOJ governor said that he didn't think China faced the risk of a hard landing, that he was "relatively optimistic" about its prospects, and that there is no sort of global crisis like the post-Lehman Brothers meltdown. If market ructions were prolonged, it would affect the economy, he said. He reiterated that there are many ways to strengthen the BOJ's easing program if needed.
Key data on Japan's economy due for release before the January 29 policy announcement may influence the outcome of the decision. The industrial output report that same morning may be particularly important, along with a survey of production plans for January.
Failing to act could have a cost: Japanese stocks jumped on Friday in part amid hopes of expanded stimulus, creating the potential for disappointment. Fellow Davos participants in recent days have given signals of support for markets, with the vice president of China saying his government will "look after" stock investors, and theEuropean Central Bank chief signaling before his arrival that he may ramp up easing as soon as March.
Excluding the impact of oil prices, Kuroda said that inflation is running around 1 per cent to 1.5 per cent in Japan, the US and Europe. Japan and others maintain a 2 per cent inflation target. "Of course, a prolonged oil-price decline or prolonged financial turmoil could affect even future inflation expectations in Japan - at this stage, not much."
