Reuters expects the BOJ’s Kuroda to approach 1% by mid-next year

By Leika Kihara

TOKYO (Reuters) – Haruhiko Kuroda, governor of the Bank of Japan, expects consumer inflation to pick up to around 1% in the first half of next year as the economy recovers to the previous level of coronavirus, expressing hope for a consumer-driven recovery.

But with inflation still far from the 2% target, the BOJ will maintain its “strong” easing of the currency and be willing to step up the stimulus, even if other central banks are on their way out of crisis-like policies, Kuroda said on Monday.

“We expect consumer inflation to gradually accelerate to around 1% by mid-next year as the output gap becomes positive,” he said in a speech to business leaders in Nagoya (central Japan).

Kuroda said the recovery in the world’s third-largest economy has been “slightly slower than initially expected” as COVID-19’s limitations and shortage of parts have affected consumption and production.

“But the mechanism for economic recovery remains the same,” he said, adding that growth in the first half of 2022 is returning to pre-pandemic levels as the removal of emergencies helps stimulate consumption.

While carmakers are facing supply cuts, Kuroda said it is likely that the bottles accused of closing factories in Southeast Asia will be repaired in the coming months.

Chip deficiencies, however, may need more time to fix, as capacity needs to be increased through capital spending to meet strong demand, the governor added.

“If global supply constraints last longer than expected, this could hurt Japanese exports and corporate profits, slowing global growth and leading to rising costs,” Kuroda said.