Spotlight: BOJ chief continues with conciliatory rhetoric despite yen's surge, languid economic indicators

Bank of Japan Governor Haruhiko Kuroda said Thursday that he expects domestic demand to recover as the economy is on a moderate recovery path despite the yen's recent surge and negligible inflation.

He intimated that Britain leaving the European Union had spooked global markets, but stood by the bank's decision to hold fire on additional easing measures.

The BOJ opted to leave its monetary policy unchanged following a two-day meeting and maintained its view that the economy is recovering moderately.

"The economy has continued its moderate recovery trend," the BOJ said in a statement, keeping its basic assessment largely unchanged since last month.

The central bank did note however that exports have been under pressure due to a slowdown in some emerging economies and on slumping demand.

But Kuroda maintained his indefatigable, upbeat rhetoric on the situation, telling a press conference after the meeting Thursday that, "Domestic demand is expected to recover as a trend, while exports will likely gradually increase as emerging economies emerge from their slowdowns."

He added, "The underlying price trend is improving steadily so we'll see inflation accelerate toward 2 percent and we expect Japan to achieve 2 percent inflation sometime during fiscal 2017."

The bank also said it will continue to increase the country's base money supply at an annual pace of around 80 trillion yen (763 billion U.S. dollars) through its asset purchasing program and will continue with its 0.1 percent charge on part of the reserves held by financial institutions.

Some of the central bankers were quoted as saying Thursday that the decision to hold fire on any policy changes was made at a trying time as the U.S. Federal Reserve stating it has no immediate plans to hike its interest rates saw Wall Street take a tumble and investors fleeing from riskier assets like stocks and ploughing into the yen, widely considered a safe haven.

Some market players here, in light of the U.S. dollar tanking to 103 yen for the first time since August 2014, during trading hours Thursday, thought the BOJ may unleash more easing measures, but Kuroda maintained his stance that the bank would only move when "necessary."

"We will examine risks to the economy and prices, and won't hesitate taking additional easing steps if needed to achieve our 2 percent inflation target," the BOJ chief said,

He added that the yen's appreciation should mirror Japan's economic fundamentals, and that speculation over "Brexit" was rocking markets and seeing investors' moves into the Japanese currency as a safe haven as not being good for the export-led economy here.

"The European Union, including Britain, has enjoyed the economic benefits of Britain joining the European Union. Markets are being swayed ahead of the referendum," Kuroda said.

"The BOJ is in close contact with the Bank of England and other overseas central banks. We will work closely with domestic and overseas authorities, while closely monitoring the outcome's impact on the bond market and global financial markets including Japan's," he said.

A strong yen is not welcomed by markets here as Japan continues to be an export-led economy and a weaker yen sees export-linked companies' profit margins widen when funds are repatriated from oversees when the exchange rate is favorable. When the yen is high, the opposite situation occurs and profit outlooks become murky and investor sentiment is diminished.

The strength of the yen also does little to support the BOJ's efforts to reverse deflation and the damage to corporate earnings threatens to further negate the efficacy of Prime Minister Shinzo Abe's "Abenomics" economic policy mix.

Abe has delayed a planned consumption tax hike by two and a half years until October 2019, as the economy barely escaped a recession in the January-March quarter, but some economists believe that the BOJ will alter its policy following this summer's upper house election, at which time Britain's decision over the European Union will also be known.

Analysts here Thursday, in the meantime, blasted the BOJ's decision to hold fire on introducing additional easing measures as being "anemic" and questioned Kuroda's "abiding optimism" as being "overly idealistic," in comparison to actual market and macroeconomic indicators of late. Endit