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imageJACKSON HOLE: Japan's labor market is showing "significant improvement," though it still faces challenges including a large share of part-time workers in the service sector, Bank of Japan Governor Haruhiko Kuroda said on Saturday.

Wage growth is critical to reverse deflation and for that to happen "it is necessary to have some kind of coordinated mechanism," Kuroda said at a central banking conference here, adding that the Bank of Japan's quantitative easing stimulus is helping Japan escape from a deflationary cycle of falling wages and demand.

"The Bank of Japan's price stability target can serve as a benchmark for wage setting," he added, speaking on a panel alongside central bankers from Brazil and Britain.

"Once the bank has succeeded in firmly anchoring (inflation) expectations at 2 percent this could provide the basis on which wage negotiations are conducted."

The Bank of Japan deployed an intense burst of monetary stimulus last April, when it pledged to double its money base with the quantitative easing program of asset purchases.

Kuroda wants to accelerate consumer inflation to 2 percent in roughly two years. Japan has been mired in 15 years of grinding deflation.

The program was initially successful, with consumer inflation, when excluding the effect from a sales tax hike in April, having recently hit 1.3 percent. Inflation is expected to slow in coming months as the boost from a weak yen on import costs begins to fade.

On Saturday, Kuroda said reaching the 2 percent inflation target is critical in getting firms to raise wages and, ultimately, reverse deflation. He added that Japan needs a favorable work environment for woman and older workers to help counter its declining labor force.

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