Asia: Kuroda stresses commitment to removing deflation

The Tokyo Stock Market continued in bullish mood, with the Nikkei closing up 0.44% after earlier losses as the central bank issued more dovish noises about eradicating deflation.

Bank of Japan Governor Haruhiko Kuroda spoke publicly for the first time since his surprise massive monetary stimulus last week.

Kuroda echoed his European Central Bank counterpart Mario Draghi in saying there were "no limits" to what he would do in his "unwavering commitment" to banish the country's chronic deflation of the last two decades.

"There's no change to our policy of trying to achieve 2% inflation at the earliest date possible, with a roughly two-year time horizon in mind," he said on Wednesday.

"In order to completely overcome the chronic disease of deflation, medicine should be taken until the end. Half-baked medical treatment will only worsen the symptoms," he said.

He stressed that prices needed to rise with appropriate “velocity and momentum” to stamp out the deflationary mindset.

“Moderate inflation is a necessary condition to escape from bad deflation equilibrium,” he said, according to The Wall Street Journal, paraphrasing that under deflation, businesses and households become reluctant to take risks, creating a vicious cycle where a fall in corporate sales and profits leads to a lack of wage growth, which exacerbates weak consumption and weighs on prices.

Joshua Mahoney at Alpari UK said: "Most importantly, this clearly means that the BoJ would be willing to intervene yet again if necessary to achieve that 2% inflation goal, which considering the recent downward trajectory in CPI, seems likely to be required."

For Jim Reid at Deutsche Bank, the key takeaways from his speech being Kuroda's insistence that the BoJ stands ready to ease monetary policy again should there be any further risks to the inflation target.

Over in China, service industry data showed a weakening in October, which dragged indices lower. A Chinese services PMI print of 52.9 showed growth was down from the 53.3 level the month before, according to HSBC and data provider Markit.

“Overall, the service sector grew steadily in October as the underlying business conditions continue to look better than in the manufacturing part of the economy,” said HSBC’s chief economist for China, Qu Hongbin.

“While this pattern will likely continue, we still expect further easing measures in the coming months to help offset the downward pressures on the economy,” he added.

Elsewhere, the new government administration in Thailand has resulted in a resurgence in the country's rice industry, which is expected to regain its status as the world's leading rice exporter, noted the Nikkei Asian Review.

The previous government's policies resulted in uncompetitive pricing for Thai rice, which has now been removed, allowing monthly exports to surge from 0.6m tonnes to 1m tonnes.