Cautious BOJ holds line on monetary policy

by Cory Baird

Staff Writer

Bank of Japan Gov. Haruhiko Kuroda said Friday it is still premature to start any discussion on the timing of an exit from the ultra-loose monetary easing policy, saying his 2 percent inflation target is still too far out.

Kuroda briefly rattled markets last week during testimony in the Lower House where he mentioned that the BOJ will probably be debating an exit policy around fiscal 2019 — the first occasion he has touched on a timeline for ending its ultra-loose monetary easing.

But with Friday’s comment, Kuroda apparently tried to calm market players who were speculating that he may end the easing in fiscal 2019.

“We are not in a state to debate over the (exit) details,” said Kuroda in a news conference held on the final day of the bank’s monetary policy meeting.

The BOJ governor reiterated monetary stimulus will not be wound down until the inflation target is reached.

Asked repeatedly by reporters to give his thoughts about the past five years of easing, Kuroda pointed out that the “powerful” monetary stimulus effort has helped drive strong economic growth and tight labor market conditions that are likely to help the economy finally realize 2 percent inflation.

“The economy has moved toward recovery, but regrettably has not reached the 2 percent target,” Kuroda said. “I say this almost every time, but the chances of reaching the 2 percent inflation goal in 2019 are high.”

Earlier in the day, the central bank’s policy board decided to maintain its monetary policy aimed at keeping the 10-year government bond yields close to zero percent in an 8-to-1 vote. The only dissent came from board member Goshi Kataoka, who for the past few meetings has used his vote to encourage an even more aggressive policy to reach the 2 percent target.

Recently, a number of positive economic indicators have been released that paint an increasingly rosy picture of the economy.

Earlier this month, Japan’s unemployment rate clocked in at a record-low 2.4 percent. And on Thursday, fourth-quarter gross domestic product was revised upward to 1.6 percent from an initial 0.4 percent, according to figures released by the Cabinet Office.

The next two-day policy meeting, set for April 26, will feature two new deputy governors, Masazumi Wakatabe and Masayoshi Amamiya.

Wakatabe is expected to protest against any moves to wind down monetary policy before the 2 percent goal is reached.

“How the dynamics of the board changes with the two new vice governors joining the policy board later this month will be one of the key issues for the BOJ’s monetary policy,” said Takuji Okubo, a chief economist at Japan Macro Advisors.

“Mr. Wakatabe will probably stay with the majority, but Kuroda may need to make a concession to him by softening his hawkish tone in order to keep Wakatabe on his side,” Okubo added.