Business / Economy

Kuroda says BOJ purchase pace to continue for some time

by James Mayger and Francine Lacqua


The Bank of Japan will continue with very accommodative monetary policy and maintain the current pace of asset purchases for some time, Gov. Haruhiko Kuroda said in an interview.

While Japan’s economy is doing better than expected a few months ago, the inflation rate is still quite sluggish, Kuroda said in New York on Thursday.

Speaking a week before the BOJ’s next policy meeting, when the board will also update its estimates for growth and consumer prices, he said the exchange rate could affect inflation in the short term and that if the yen appreciates, there is a chance of a delay in hitting his 2 percent price goal. He added that depreciation would have the opposite effect.

The yen extended its declines after Kuroda spoke. It traded at 109.26 to the dollar at 11:02 a.m. in Tokyo on Friday.

After four years of aggressive monetary stimulus, and with his term set to end in April 2018, Kuroda is still far from his goals while his Federal Reserve counterpart Janet Yellen is taking rates higher and policymakers at the European Central Bank are debating tapering. All three central banks have run up huge balance sheets since the financial crisis after buying bonds and other assets.

“It’s premature to discuss in an exact way about exit strategy,” Kuroda said. While the Fed’s strategy of keeping the balance sheet unchanged as it raises rates is one way to exit, “whether we would follow the Fed example or not depends on the situation when we decide exit strategy.”

Kuroda also faces a market that’s highly skeptical of his capacity to continue vacuuming up Japanese government bonds. Some investors have criticized the BOJ for distorting normal market mechanisms while others have warned that it will run out of securities to buy.

“I don’t think our monetary policy is constrained by the fact that we have acquired 40 percent of JGBs already, or our balance sheet is about 80 percent of GDP, which is certainly large compared with other central banks,” Kuroda, 72, said. “We have acquired about 40 percent of JGBs outstanding. But that means that 60 percent is still in the market.”

All but one of 39 economists in a Bloomberg survey expect the central bank will maintain its current settings at the conclusion of a two-day gathering ending on April 27. An overwhelming majority of 33 said the next policy move will be a tightening, with an almost even split on whether this could come this year or later.

The BOJ is said to be considering a small reduction in its inflation forecast, people familiar with the BOJ’s discussions said earlier this week.

“The target is 2 percent — we’re still around zero percent. So it’s a long way to go,” Kuroda said on Thursday.

While the yen has weakened considerably since Kuroda became BOJ governor, it has strengthened about 7 percent against the dollar this year, driven in part by global economic and geopolitical uncertainty.

Speaking later in Washington, where he is attending an International Monetary Fund meeting, Kuroda said the BOJ’s policy, and that of other central banks, is aimed at price stability, not exchange rates.

The BOJ shifted the focus of its monetary policy to yield-curve control in September last year, and has maintained a huge asset-purchase program. Kuroda said in the interview Thursday that the bank would keep as a reference point the aim of increasing its holdings of government bonds at a pace of around ¥80 trillion per year.

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