The Bank of Japan will maintain its so-called "quantitative easing" policy for the time being despite growing signs of an economic recovery, business daily Nihon Keizai Shimbun (Nikkei) quoted BOJ Governor Toshihiko Fukui as saying. "Until the CPI (consumer price index) stops declining, we will patiently keep quantitative easing measures," Fukui said in an interview with the Nikkei, conducted on Friday and published on Saturday. "Even if we pass through that stage of experiencing CPI growth of at least zero percent, any major policy alterations will be weighed on a continuous plane," Fukui said. The Japanese central bank forecast on Wednesday that deflation would ease in the coming year on the back of an economic recovery but sought to reassure an edgy bond market by vowing to stick to its ultra-loose monetary policy.
The central bank's twice-yearly outlook on prices and the economy showed that the central forecasts, which exclude the highest and lowest projections of its nine-member board, for the core consumer price index in the fiscal year that began last month were for a decline of between 0.1 and 0.2 percent. The median forecast for core nationwide CPI, which excludes volatile fresh foods, was minus 0.2 percent, although one member predicted a rise of 0.5 percent. In Friday's interview with the Nikkei, Fukui cautioned that the central bank's open-market operations had limitations as a tool to hold down long-term interest rates. "We want the government to clarify its plans for bringing the primary balance into a surplus in order to secure fiscal discipline," Fukui said, referring to the balance between government revenue and expenditure, excluding debt issuance and servicing costs. Commenting on a two-percent decline in Tokyo's Nikkei average <.N225> on Friday, partly on concern about a possible slowdown in China's economy, Fukui voiced confidence in China's central bank. "While the market seems to be concerned about whether China is able to adjust its economic growth, I believe that its central bank has a firm grasp of the issues at hand and I have confidence in it." On the yuan and the persistent pressure on China to revalue the currency, Fukui said: "In the end, the nation will need to move toward a flexible currency policy."//