No limits in monetary policy adjustment, Kuroda says


Bank of Japan Gov. Haruhiko Kuroda says there are no limits for adjusting the bank’s current “quantitative and qualitative” easing regime introduced in April 2013, stressing there room for additional monetary easing.

In an recent interview, Kuroda said: “We will adjust our monetary policy either way if necessary. It’s not to say that there are limits for such adjustments or that we have no more easing options.”

Kuroda thus denied suggestions that the BOJ no longer has effective policy tools available. The interview took place ahead of the one-year anniversary of Kuroda taking office as BOJ chief on March 20, 2013.

“Basically, we are well on track for the 2 percent inflation goal,” Kuroda said.

“At this moment, we see no very big risks.”

Meanwhile, he said close tabs need to be kept on risk factors abroad at a time when global financial markets are showing volatility, due partly to concerns over the situation in Ukraine.

Supplying massive funds to the banking system under the current ultraeasy policy could help create an asset bubble in the future and shake the financial system as a result. Still, Kuroda clearly puts priority on sweeping away the deflation that has crippled the economy for years.

“Our biggest goal and mission is to fully overcome deflation, achieve 2 percent inflation and sustain it,” Kuroda said. “What matters most now is to realize the inflation goal at an early time,” he added, indicating the BOJ’s readiness to take additional easing measures if achieving the target becomes difficult.

But Kuroda refrained from commenting on specific measures.

“We will carry out necessary policy adjustments while scrutinizing economic and price conditions, and examining whether we are (steadily) moving on a path toward 2 percent inflation,” he said.

When it launched the quantitative and qualitative easing policy, the BOJ set two years as the price growth timeline.

To help reach the target, the central bank is trying to increase the nation’s monetary base, or the combined balance of currency in circulation and financial institutions’ current account deposits at the BOJ, to ¥270 trillion at the end of this year from ¥138 trillion at the end of 2012, mainly through massive purchases of Japanese government bonds in its money market operations.

Kuroda predicted that the consumption tax hike to 8 percent on April 1 will “have major impacts” on the domestic economy in the April-June quarter.

But he added that the economy is expected to return gradually to a growth trend as the economy is expected to get back to normal in the summer.

Japan’s core consumer price index, which fell continuously before the launch of the BOJ’s easing policy, has now reversed course.

Kuroda is entering a crucial second year at the BOJ helm with the latest government data showing year-on-year core CPI growth standing at 1.3 percent in January.

Meanwhile, concerns are increasing about the economy. The government recently lowered the annualized quarter-on-quarter real gross domestic product growth for October-December to 0.7 percent from the earlier reported 1.0 percent, due to slowing growth in personal consumption and corporate capital spending, although the economy expanded for a fifth straight quarter.

An economist at a Japanese securities company said it will be very difficult for real GDP growth for fiscal 2013, which ends March 31, to reach 2.7 percent, as forecast by the BOJ.

The economic environment is likely to be tougher in fiscal 2014. Domestic demand is seen slowing on the back of the consumption tax hike, while exports remain sluggish amid decelerating growth of emerging economies, even though the yen remains weak.