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Economy

Kuroda sees no need to act ... for now

Bank of Japan Gov. Haruhiko Kuroda speaks at a press conference in Tokyo on Oct. 30.

TOKYO -- Bank of Japan Gov. Haruhiko Kuroda on Friday poured cold water on expectations for further easing, saying Japan's economy remains on track for a steady recovery.

     In the Outlook for Economic Activity and Prices released after the BOJ's second October meeting, the central bank pushed back the time frame for achieving its 2% inflation target; it also lowered its forecast for economic and price growth through fiscal 2016.

     Speaking at a press conference, Kuroda said he sees trend inflation remaining intact and that there was no mention of additional easing among board members. "As the effect of falling oil prices dissipates," he said, "inflation will start moving toward the bank's target of 2%."

     The BOJ chief added that the Bank is aiming for a balanced approach. "We will make necessary adjustments to our program to achieve the 2% inflation target as soon as possible," he said, "but only if it is in balance with the overall economy."

     Looking at economic data alone, there are ample reasons for the BOJ to open its taps further. Industrial production for July-September was down 1.3% from the previous quarter. Real wage growth remains weak, with August seeing a 0.1% increase compared to 12 months earlier. Japan's consumer price index, excluding volatile prices of perishable foods, fell 0.1% in September on the year. It was the second consecutive month of decline.

     "I think this is a different BOJ we are seeing," said Masaaki Kanno, chief economist at J.P. Morgan Securities.

     In its outlook, the bank admitted wage growth has been weak, and Kuroda told reporters that corporate capital investment has not been as strong as expected.

     "The BOJ we came to know was pre-emptive in its approach," Kanno said. "When it surprised the markets with additional easing a year ago, it was because it thought falling oil prices would have a negative effect on people's inflation expectations. The same could happen because wage growth and capital investment are weak, but [this time] the BOJ did not act. We are witnessing a backward-looking BOJ."

     The market has become accustomed to a pre-emptive, 'whatever it takes' central bank. "I think Kuroda will have a hard time communicating with the market from now on," said Kanno.

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