BOJ Kuroda signals chance of delay in hitting price goal

October 20, 2016 9:20 PM EDT

Bank of Japan Governor Haruhiko Kuroda speaks to reporters at the Willard Intercontinental Hotel during the annual meetings of the IMF and World Bank Group in Washington, October 6, 2016. REUTERS/James Lawler Duggan


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By Leika Kihara

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said the central bank may push back the timing for hitting its inflation target at this month's rate review, given underlying weakness in price growth.

Kuroda did not specify how such a delay could affect the BOJ's policy decision, though he stressed that the bank's bond purchases may slow in the future if 10-year bond yields fall well below its target of around zero percent.

Speaking in parliament on Friday, Kuroda said he expects Japan's economic growth to accelerate next fiscal year from the current year on brightening prospects for global growth.

But he suggested that the recent weakness in core consumer prices, which marked the sixth straight month of annual falls in August, may force the BOJ to cut its inflation forecast at a quarter review of its projections at a Oct. 31-Nov. 1 meeting.

"There may be some modification to our forecast that inflation will hit our 2 percent target during fiscal 2017," Kuroda said.

He added that any such downgrade would be due largely to the effect of weak oil prices and the yen's recent rises that pushed down import costs.

"We will continue to implement an extremely accommodative, expansionary monetary policy not just to reach to 2 percent but to allow actual inflation go beyond 2 percent," he told a seminar later on Friday.

Sources have told Reuters the BOJ will slightly cut next fiscal year's inflation forecast in the quarterly review, though the central bank is seen holding off on easing after having just revamped its policy framework in September.

The BOJ has repeatedly been forced to push back the timing for hitting its ambitious 2 percent inflation target as falling oil prices and weak consumption weighed on overall prices.

The central bank last month switched its policy target to interest rates from expanding the monetary base after its massive asset purchases failed to generate sustained inflation.

Under a new "yield curve control" (YCC) framework, the BOJ's main means for monetary easing would be to deepen negative interest rates from the current minus 0.1 percent, or lower its 10-year bond yield target - now set at around zero percent.

Kuroda reiterated that the BOJ may slow the pace of its bond purchases from the current pace of 80 trillion yen ($769 billion) per year as long as it can meet its new yield target.

"If 10-year government bond yields fall well below our target of around zero percent, we may slow our bond purchases," Kuroda said.

"But we don't see an immediate possibility of our bond buying falling sharply from the current pace," he said.

Kuroda also said the BOJ saw no need to set a rigid range on how much 10-year yields could deviate from the target of around zero percent, saying that the target was a loose one for some room for allowances.

(Reporting by Leika Kihara; Editing by Eric Meijer and Simon Cameron-Moore)



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