By Leika Kihara
STRESA, Italy (Reuters) – Bank of Japan Governor Kazuo Ueda said on Thursday the economy was on track for a moderate recovery, suggesting a slump in first-quarter gross domestic product (GDP) alone would not keep the central bank from raising interest rates in coming months.
But Ueda said the outlook for the U.S. economy was among key risks to growth that will likely be discussed at a meeting of finance ministers and central bank governors of the Group of Seven (G7) advanced nations.
“As for risks, the biggest focus would be whether the U.S. economy will complete that one last mile and engineer a soft landing or not,” Ueda told reporters ahead of the G7 finance leaders’ gathering this week in Stresa, Italy.
Japan’s economy shrank an annualised 2.0% in the first quarter as output disruptions at some automakers hurt production and exports. Consumption also took a hit from rising living costs, blamed in part on a weak yen that inflated import costs.
The weak first-quarter GDP data came out after the BOJ’s policy meeting in April, at which the central bank projected consumption would rebound and keep the economy on track for a moderate recovery.
“The data hasn’t changed much our view on Japan’s economy,” Ueda told reporters. Auto production is likely to recover from the second quarter and onward, he said.
Inflationary pressure from rising raw material costs is also likely to dissipate which, coupled with rising nominal wages, will underpin household income and consumption, he added.
The remarks are likely to keep alive market expectations the BOJ will raise interest rates again later this year from current near-zero levels.
The BOJ ended eight years of negative interest rates and other remnants of its radical stimulus in March as it judged that sustained achievement of its 2% inflation target was in sight.
Ueda has said the central bank intends to hike rates to levels considered neutral to the economy, as long as growth and inflation move in line with its projections.
Ueda will attend the G7 finance leaders’ meeting in Stresa with Japanese Finance Minister Shunichi Suzuki.
