Roundup: BOJ chief optimistic on economy, inflation target, despite Brexit fallout, gov't's opposing view

Bank of Japan Governor Haruhiko Kuroda on Thursday said the central bank stood poised to unleash further stimulus measures if necessary as it continues to chase its lofty 2 percent inflation target, while maintaining an upbeat view of the economy.

The central bank's chief's positive remarks, delivered at a quarterly meeting of the central bank's regional branch managers on Thursday, made no mention of Britain's vote to leave the European Union which has wiped billions of dollars of stock markets and thrown global financial markets into disarray.

"Japan's economy is expected to expand moderately as a trend," Kuroda said, echoing his unwaveringly affirmative rhetoric, despite the Cabinet Office stating Thursday that the economy is "pausing" after releasing data showing that Japan's key gauge of the current state of the economy dropped for the first time in three months.

The composite index (CI) of coincident economic indicators, Japan's broadest indicator of economic health, retreated 1.5 points in May from a month earlier to stand at 110.5 against the 2005 base of 100, the Cabinet Office said in a preliminary report, maintaining its recent assessment based on the coincident CI, saying the index shows Japan's economy is "pausing" in stark contrast to Kuroda's view.

Kuroda said that although consumer prices may decline moderately for the time being, inflation will accelerate toward the BOJ's 2 percent target within its timeframe as the economy improves.

"Japan's financial system is stable and financial conditions remain very accommodative," Kuroda said, with reference to the bank's negative interest rate supporting Japanese banks against global economic headwinds.

However, according to the central bank's own quarterly Tankan business sentiment survey released earlier this month, business sentiment remained lackluster in the second quarter, adding to speculation the BOJ will unveil more stimulus measures to take the edge of the yen's strength and underpin the economy amid global economic uncertainty following Britain's vote to leave the European Union.

Japanese companies, the bank said, expect consumer prices to rise an average of just 0.7 percent in a year's time retreating 0.1 percent from three months ago and marking the fourth straight time inflation outlooks have been cut, the Bank of Japan (BOJ) said in its latest report on the matter.

Economists here believe the bank unrolling more easing measures may be on the cards, as its lofty 2 percent inflation target remains a long way short, with the companies' forecasts dropping 0.8 percent from those initially expected for the coming year in March as inflation remains largely flat.

The central bank said that companies now expect inflation to rise at an annual rate of 1.1 percent three years later, a view held since March, but in five years' time companies expect an annual increase of 1.1 percent, dropping from a previous expectation of inflation hitting an annual rate of 1.2 percent.

For large manufacturers, the BOJ said in the next year companies expect an inflation rate of 0.6 percent, unchanged from previous views, whereas small and medium-sized companies not connected to manufacturing forecast a lower inflation rate compared to previous views.

According to the latest government statistics, the core consumer price index dropped 0.4 percent in May from a year earlier, marking the biggest drop since the BOJ unrolled its massive asset purchasing program in 2013, and negating, to some extent, Kuroda's unyielding upbeat viewpoint.

While claiming the economy is on a moderate recovery path, in contrary to the government's own assessment released the same day, the central bank on Thursday downgraded its economic assessment on two of Japan's regional economies.

The BOJ continues to aim to boost the monetary base at an annual pace of about 80 trillion yen and plunged its interest rate into negative territory in February in an attempt to bolster its stimulus program. Endit