Bank of Japan Gov. Haruhiko Kuroda said the recent pace of growth in the world’s third-largest economy is probably unsustainable and pledged to continue with very accommodative monetary policy “for some time” as the BOJ is far from its inflation target.
“I think 4 percent growth is excellent but we don’t think 4 percent growth can be sustained. Around 2 percent growth is likely,” Kuroda said in an interview on Bloomberg Television recorded Friday in Jackson Hole, Wyoming. “I think for some time we have to continue this extremely accommodative monetary policy.”
The BOJ chief, who joined Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi at the mountain retreat for an annual gathering of monetary policy makers, said he’s watching moves by global colleagues but added that BOJ policy has to be aimed at conditions in Japan.
“The economic and price situation in the U.S. is much, much better than the situation in Japan,” Kuroda said in the interview. Kuroda noted that Japanese businesses and labor unions still exhibit a “deflationary mindset,” which is crimping price gains.
Like his American and European colleagues, Kuroda is grappling with an economy that’s expanding but still failing to generate significant wage gains and a healthy level of inflation. At its most recent policy meeting in July, the BOJ pledged to forge on with its program of asset purchases and yield-curve control after delaying the projected timing for reaching its 2 percent price target for a sixth time.
Yet the BOJ risks getting out of step with its developed-world peers as it presses on with its unprecedented monetary stimulus while the Fed raises rates and the ECB debates how to start normalizing policy.
A brief convergence this year in the dollar value of the balance sheets of the Fed, the ECB and the BOJ has passed, and the trio are now set to take very different paths. The BOJ may find itself carrying something approaching double the load of its American counterpart two years from now.
In the interview, Kuroda said his yield-curve control program, introduced last year, has been working quite well and that he doesn’t see a need to adjust it at present. He added that the BOJ isn’t running out of Japanese government bonds to purchase and that the market is still functioning quite well.
“Since JGBs remaining in the market is going to decline, that means that with one unit of JGB purchase, the impact on the interest rate could be bigger,” Kuroda said. “So that in coming months there will be less and less need to purchase JGBs in order to maintain the yield curve.”