Bank of Japan Governor Haruhiko Kuroda delivered a speech at the Kisaragi-kai Meeting in Tokyo on 5th November 2014. He mainly spoke about ensuring achievement of the price stability target of 2 percent.
He started off saying that he will explain the background and thrust of the BOJ decision to expand the quantative and qualatative monetary easing (QQE), as well as the central bank’s recognition and prospects for economic activity and prices.
Pointing out the objectives of QQE, he said, “In April last year, the Bank introduced the QQE to achieve the price stability target of 2 percent at the earliest possible time, with a time horizon of about 2 years.”
It’s been one and a half years since the introduction of QQE, and Kuroda says that it has been producing the intended results so far with Japan’s economy recovering moderately. However, he admits that the revival has been affected by subsequent decline in demand resulting from sales tax hike.
The outlook for Japan’s economy has been on the lower side. He said that in the Outlook Report October 2014, ‘projections for real GDP growth rates were 0.5 percent for fiscal 2014, 1.5 percent for fiscal 2015, and 1.2 percent for fiscal 2016.’
Explaining the price developments in the country, he said that the year-on-year rate of change in the CPI excluding fresh food, which was minus 0.5 percent in March 2013, turned positive thereafter and has reached around 1¼ %, excluding the direct effects of the sales tax hike. The bank considers that inflation will subsequently accelerate and reach the price stability target of 2 percent in or around fiscal 2015.
Emphasizing the significance of achieving the price stability target of 2 percent he said that the target of 2 percent inflation has become a global standard, and on the basis of knowledge gained from experience it can be said that this target prevents the economy from falling into deflation, taking into account that inflation changes in accordance with economic fluctuations.
Kuroda said, “Conversion of the deflationary mindset has been steadily progressing under the QQE. Such progress should not be stopped now.”
Talking about the timeframe of 2 years to achieve the price stability target he said, “To dispel the deflationary mindset and establish 2 percent inflation firmly in people's minds, it is necessary to have a certain level of velocity and momentum. This is why the Bank adheres to its timing for achieving 2 percent inflation.”
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