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Economy

Bank of Japan pledges to keep ultra-loose policy despite global tightening cycle

Gov. Kuroda agonizes between decelerating inflation and being left behind

Bank of Japan Gov. Haruhiko Kuroda attends a news conference at the central bank's headquarters in Tokyo on Friday. (Photo by Tsuyoshi Tamehiro)

TOKYO -- Bank of Japan Gov. Haruhiko Kuroda pledged on Friday to tenaciously maintain the central bank's ultra-loose monetary policy, even as its peers in the U.S., Europe and Asia have started to tighten their policies.

At a press conference after the central bank's policy-setting board meeting, Kuroda explained why Japan is not in a position to move in tandem with the U.S. Federal Reserve and the European Central Bank. "Although prices and wages are rising steadily in the United States, they are not going up in Japan," he said with a look of anguish.

The BOJ policy board left its benchmark interest rate at minus 0.1% and kept its yield-curve targets near zero, less than 24 hours after the ECB announced a plan to exit from its crisis-era policy of quantitative easing at the end of December.

The BOJ's decision also came days after the Fed raised interest rates from 1.75% to 2% -- the second increase this year. Fed Chairman Jerome Powell said the U.S. central bank was considering accelerating its interest rate hikes. Following the Fed's move in March this year, some Asian central banks, including those in India, Indonesia and the Philippines, have raised their policy rates for the first time in years.

For Japan, normalization of monetary policy still seems years away. The BOJ revised down its inflation assessment on Friday, suggesting that achieving its inflation target of 2% will now take more time. Kuroda attributed the reason to persistent deflation.

"Deflation continued from 1998 to 2013, and companies and households are still very much affected with a deflation mindset," he said.

Meanwhile, the Japanese government said on Friday that it will postpone its target of achieving a surplus of the primary balance to the 2025 fiscal year from 2020 previously.

Many market participants now expect that there will be a significant delay in fiscal consolidation, which is seen putting additional pressure on the central bank to continue buying massive amounts of government bonds. "It is too early to talk about a process and methods of an exit strategy," Kuroda said at the press conference.

Putting on a brave front over Japan being left behind on global monetary policies, he noted: "Financial policy should be based on the economic situation of each country. As the rate of price increases has not risen sufficiently, we have to continue ultra-loose monetary policy."

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