- Japan Prime Minister Abe said the BoJ should not pursue the inflation target "at all costs"
- The Japanese currency has risen 3.5 per cent against the greenback over the past two weeks
- On Wednesday, Kuroda takes charge of his first two-day meeting of the BoJ's policy board
Japanese Prime Minister Shinzo Abe has said that the 2 per cent inflation target he imposed on the Bank of Japan may not be reached within two years.
"The economy is a living thing and we don't know what will happen around the world. What is important is to aim steadily for the target," Mr Abe told parliament on the eve of Haruhiko Kuroda's first board meeting as Bank of Japan governor.
In an exchange with Seiji Maehara, an opposition politician and former economy minister, Mr Abe said the BoJ should not pursue the inflation target "at all costs".
His comments mark the first time that the new prime minister has suggested the inflation target he set out four months ago may not be met within the two-year timeframe outlined by Mr Kuroda, his choice for BoJ governor.
Since Mr Abe and the Liberal Democratic party swept to victory in December on a platform of aggressive monetary and fiscal stimulus to overturn more than a decade of deflation, the yen has fallen steeply against major currencies, sending the stock market higher.
But amid mostly weak economic data, expectations of inflation have yet to pick up, suggesting that Mr Kuroda's task may be more difficult than Mr Abe's team of advisers had imagined.
The yen continued to gain against the US dollar on Tuesday, breaching 93 to hit 92.90 in afternoon trading in Tokyo, which analysts partially attributed to weak manufacturing data overnight from the US.
The Japanese currency has risen 3.5 per cent against the greenback over the past two weeks. The Nikkei 225 closed down 1.1 per cent, taking its fall over the past five days to 3.8 per cent. However, despite the recent gains, the yen has fallen 20 per cent against the US dollar in the six months since Mr Abe was elected as leader of the then opposition LDP.
Masaaki Shirakawa, Mr Kuroda's predecessor as BoJ governor, often pointed out that Japan had rarely seen a 2 per cent rate of inflation, even in periods of strong growth decades ago. In January he adopted Mr Abe's target but on the condition that it came with a statement from the government that it needed to play its part in generating inflation by implementing growth-friendly reforms.
A quarterly BoJ survey released on Monday showed that the general public's expectations of inflation over the next five years had not changed much since the last time the survey was carried out, between November and December.
A separate survey of bond investors, also published on Monday, showed that, while average expectations of core inflation over the next ten years had increased to 1.13 per cent, the highest since November 2008, the median and mode were unchanged at 1 per cent. In a separate question on "Abenomics," 79 per cent of respondents said they expected less than 2 per cent inflation in two years.
The latest core CPI data, which excludes the price of fresh food, showed year-on-year price falls of 0.3 per cent in February. Excluding energy costs -- similar to the US core measure of inflation -- the index stood at minus 0.9 per cent.
On Wednesday, Mr Kuroda takes charge of his first two-day meeting of the BoJ's policy board, with investors expecting a shift in tone and direction from the Shirakawa era. Mr Kuroda last week said the central bank would consider combining its monthly bond purchases and asset-purchase fund, as well as buying more debt with longer maturities.
The new governor's "journey" to raise broad expectations of inflation "appears a challenging and long one," said Masamichi Adachi, economist at JPMorgan in Tokyo and a former BoJ official.