Business / Economy

At Diet, Kuroda touches on exit strategy for easing once 2% inflation is reached

by Cory Baird

Staff Writer

Bank of Japan Gov. Haruhiko Kuroda said Friday the central bank will discuss, at least in principle, an exit policy from its current aggressive monetary easing in fiscal 2019 if the 2 percent inflation target is reached.

Appearing in front of a Lower House committee where he laid out his vision for the next five years, Kuroda also insisted that he will make “utmost efforts” to achieve the prized target.

Kuroda made clear that while the bank is not yet considering a “concrete” exit strategy, as the 2 percent inflation target has not yet been reached, he did admit that the bank was discussing the eventual “nature” of an exit.

“If we decide that there is sufficient momentum toward the 2 percent inflation goal, and if there is a need, … we will consider adjusting monetary policy,” said Kuroda.

“The debate over the exit strategy is something I have spoke on before. There are two circumstances. One is what to do with the expanded balance sheet, and the other is how to normalize the short-term interest rates.”

Kuroda, no stranger to public appearances, appeared calm during the question and answer session before the Lower House committee that is tasked with approving his second term.

“Today’s unemployment rate was an astonishing 2.4 percent, and while wages and inflation have remained weak, we are no longer in a deflationary state,” he said, briefly cracking a smile as he mentioned the upbeat data released Friday.

“We think there is momentum toward the 2 percent inflation.”

Kuroda appeared to have taken a few lessons from his first term, however, shying away from giving an exact date for when he believed the inflation rate would finally be reached.

“We are thinking we will reach (two percent inflation) by 2019. But we are not saying whether it will be at the beginning, middle, or end.”

A media report Tuesday said that Prime Minister Shinzo Abe considered nominating the current ambassador to Switzerland, Etsuro Honda, as the next BOJ governor. It also said that the plan was not followed through in part because of push back from finance ministry officials, who consider Honda’s extreme reflationary ideas too risky.

With Abe’s party maintaining a strong majority, it’s certain that Kuroda will be approved for a historic second term beginning in April. But Kuroda will have his hands full moving forward as he tries to normalize BOJ policy.

“We can’t easily raise the yield-curve control target rate,” Kuroda said, adding that lifting the rate too early may prevent the country from escaping the deflationary mindset it has long faced.