• Bloomberg, Kyodo


With inflation still distant from its target, the Bank of Japan left its monetary stimulus program on cruise control, saying improving private consumption will support a growing economy.

The policy statement Friday came on the heels of the Federal Reserve’s third interest rate increase since December, underscoring how the BOJ continues to fall behind its global peers in normalizing policy. It will continue to manage the yield curve through a negative interest rate and buying trillions of yen worth of bonds, as expected by economists surveyed by Bloomberg.

Japan’s longest period of economic expansion in a decade has provided some support for the BOJ, which hasn’t changed policy since September last year. While the amount of bonds it buys is slowing, there is little expectation that it will substantially change course during the rest of Gov. Haruhiko Kuroda’s current term. There are increasing calls for him to at least map some details of how the BOJ may eventually exit stimulus.

Kuroda, however, talking about an exit strategy will only create confusion.

“The exit will come after the inflation target is reached in a stable manner, and it’s difficult to show concrete methods or the order in which they would happen,” Kuroda said in a post-meeting press conference.

The BOJ’s decision-making Policy Board voted 7-2 to keep its policy rate at minus 0.1 percent as well as continue purchases of government bonds to guide the benchmark 10-year yield around zero percent.

Akio Negishi, president of the Life Insurance Association of Japan, said last week that the BOJ should talk openly now about how it might unwind its policies, even if it has to change its approach later. The life insurance industry is the third-biggest holder of government bonds, after the BOJ itself and commercial banks. Hiroshi Yoshikawa, a former adviser to the finance minister, echoed that sentiment, urging the BOJ to talk about exit.

Not everyone thinks it’s so urgent for the bank to start that discussion.

“It’s not strange that Kuroda isn’t talking about an exit plan when inflation’s around zero percent. It’s just too early,” said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo. “The problem is that some started to wonder if the BOJ is really thinking about exit at all. That’s something Kuroda would want to clarify.”

While Kuroda has said talk of any exit from monetary stimulus is premature and would end up confusing markets, the bank is recalibrating its communications to acknowledge that it is thinking about how to handle an eventual exit, people familiar with the matter told Bloomberg this month. However, they don’t want to give the impression that this is on the agenda anytime soon.

The overall assessment of the economy was unchanged, with the BOJ characterizing it as “turning toward a moderate expansion.”

Talk about exiting monetary easing is gaining momentum around the world. The Fed gave further details of its plan to normalize its balance sheet this year as it raised rates. The European Central Bank softened its easing bias at a meeting this month, reinforcing a view that it is moving toward an exit.

The wider debate about winding down stimulus in Japan doesn’t indicate confidence that the central bank will reach its goal. Forty of 42 economists surveyed by Bloomberg said the 2 percent inflation target is unattainable within the BOJ’s projected time frame.

“What’s changed is that others have started calling for an explanation of an exit,” said Masaki Kuwahara, senior economist at Nomura Securities in Tokyo. “There’s a possibility that the BOJ may respond and answer to some extent, but they are not going to change their policy for a while.”

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