BOJ chief stays course on ultralow rate policy despite sharp yen drop

Bank of Japan Governor Haruhiko Kuroda said Saturday that monetary easing is still needed for Japan to ensure wage growth and achieve its 2 percent inflation target stably and sustainably.

Kuroda again signaled that the BOJ would remain an outlier among major central banks, which have begun to raise interest rates to fight inflation. The yen has plunged to a 32-year low versus the U.S. dollar as financial markets price in that policy divergence.

His remarks at an event in Washington contrasted sharply with those of his British counterpart Andrew Bailey, who indicated that a bigger interest rate hike would be needed despite his government's tax cut plan riling financial markets.

"Since headline inflation is expected to fall below 2 percent in the next fiscal year, the BOJ is continuing with monetary easing," Kuroda told the event, organized by the Group of Thirty, an independent association of financial leaders and academics.

The recent rise in consumer inflation in Japan is due largely to higher commodity prices and will not be sustainable, Kuroda said, while acknowledging that there have been some "signs of change" in the mindsets of Japanese firms and people regarding prices and wages.

Core consumer inflation surged 2.8 percent in August, and economists say the figure will top 3 percent as early as September.

The BOJ's diversion from other central banks, including the U.S. Federal Reserve, has been weakening the yen this year. The Japanese currency's relentless fall prompted a fresh verbal intervention by Japanese authorities as it neared 149.

During the event, Bank of England Governor Bailey made the policy contrast starker by saying he does not hesitate to raise rates to meet its own inflation target.

"As we stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August," he said.

The BOE is scheduled to hold its regular policy meeting in early November, while the BOJ's review will take place later this month.

© Kyodo News