Investing.com - The Bank of Japan's effort to boost money in circulation by charging interest for cash parked by lenders at the central bank has no direct and quick impact on raising consumer prices or inflation expectations, Governor Haruhiko Kuroda said Tuesday.
"Some arguments and reports say there is a link between the monetary base and inflation expectations but increasing the monetary base alone would not immediately boost prices or inflation expectations," he told the Lower House Financial Affairs Committee.
"The transmission mechanism of the QQE is to lower real interest rates and stimulate economic activity, such as capital investment and consumer spending. An improvement in the output gap will help raise inflation," he said, referring to the quantitative and qualitative easing launched in April 2013.
Meanwhile, Kuroda said while longer-term inflation expectations have slipped, the move among some firms to raise prices has been spreading and the underlying trend of prices, which excludes the dampening effect of falling energy costs, has been improving.
The BOJ estimates the CPI minus volatile fresh food and energy prices rose 1.3% on year in December, with the pace of increase accelerating from 1.2% in November.