Inflation will return to target, BoJ deputy governor says

Japan’s central bank was confident the economy would continue to grow and that inflation would continue to recover, but weakness in emerging markets was a risk, a top official said on Wednesday.

“The most significant risk at the moment is the possibility that a further slowdown in emerging economies ... will exert negative effects on Japan's economy and weigh on the underlying trend in inflation,” Bank of Japan deputy governor Kikuo Iwata told business leaders in Okayama, Japan.

Iwata said was confident inflation would return to his institution’s 2% target, blaming recent drops on falling energy prices, which are transitory and therefore not a risk.

Tighter labour market conditions will push wages higher just as corporates are deploying record profits on capital expenditures, the rate-setter said. In turn, higher spending from households and companies would help close the output gap.

Nevertheless, "if such risks materialise and threaten the underlying trend in inflation, the BOJ will adjust policy without hesitation," he added.

As of 15:06, dollar/yen was trading 0.44% higher to 123.41, boosted by a stronger than expected reading on the US ADP payrolls report for November.