The Bank of Japan has “many options” for additional easing, Gov. Haruhiko Kuroda said, emphasizing that the bank will adjust its policy as needed to reach its 2 percent inflation target.
“We have substantially increased our JGB holdings but still it’s about 20 percent of total JGBs outstanding,” Kuroda said in response to questions after delivering a speech Wednesday in New York, noting that the Bank of England holds roughly 40 percent of government debt. “Our purchases of CP, corporate bonds, ETFs and J-REITs have been quite small compared to the market size.”
Kuroda’s comments come amid increasing signs of doubt at the BOJ that it will achieve its two-year time frame for the target.
“Kuroda wants to appeal to an international audience that he’s willing to do more, and trying to create the impression that the BOJ is much more aggressive than in the past,” Daiju Aoki, senior economist at UBS AG in Tokyo. “Kuroda knows the critical role of monetary easing in ‘Abenomics,’ and that Abenomics will crash if there is doubt” over the BOJ’s commitment, he said.
Aoki also said additional stimulus is unlikely in the next few months as Kuroda retains confidence in income and labor market conditions.
Seven of 33 economists estimate the central bank will expand stimulus in January, replacing October as the most favored month, according to a Bloomberg survey conducted from Sept. 26 to Oct. 2.
“Our commitment is result-oriented,” Kuroda said in his speech to the Economic Club of New York. “The bank will make adjustments without hesitation” if risks appear and it’s judged necessary for achieving the price stability target, he said.
The majority of the nine BOJ Policy Board members think it should drop the two-year time frame for meeting its inflation target, according to sources familiar with their discussions.
They are concerned that investors may view next April as a binding deadline, fueling speculation that the bank will boost stimulus to meet the goal, said the sources, who asked not to be named because talks are private.
Any revision will probably come before April and could be as early as this quarter, some of the sources said.
Board member Sayuri Shirai objected to policy-statement language this week that says inflation expectations “appear to be rising on the whole,” saying instead they’re on “an uptrend from a somewhat longer-term perspective.”
Takahide Kiuchi, another of the board members, proposed again that the BOJ aim at the 2 percent target in the medium-to-long term. This was defeated by an 8-1 vote, as it has been each time Kiuchi proposed it in the past.
The BOJ held 21.2 percent of the ¥1.013 quadrillion of outstanding JGBs at the end of June, according to central bank data. As well as government bonds, the bank purchases commercial paper, corporate bonds, ETFs and J-REITs as part of its easing program.