Kuroda pushes back against speculation tightening is near

Haruhiko Kuroda Photographer: Kiyoshi Ota/Bloomberg

Governor Haruhiko Kuroda delivered a message to investors speculating that the Bank of Japan (BOJ) might be nearing the start of policy normalization: Not so fast.

Kuroda said the BOJ wasn’t in a position to even consider exiting its current policy, after it maintained its massive stimulus program and kept its inflation and economic forecasts unchanged earlier on Tuesday.

“Given there is still a distance to the achievement of the 2-percent price stability target, I don’t think that we are at a stage where we consider the timing for a so-called exit or how to deal with it,” Kuroda said during a news conference. “The Bank of Japan thinks it’s necessary to continue tenaciously with the current powerful easing for the sake of the economy.”

The BOJ’s board voted 8-1 to keep its interest rates and asset purchases at current levels. In a small sign of progress, it said inflation expectations remained more or less unchanged, an improvement from its previous assessment that they were weakening. Still risks to prices remain “skewed to the downside,” it said in its quarterly outlook report.

The central bank forecast the economy to grow 1.4 percent in the fiscal year starting last April, with inflation of 1.4 percent over the same period.

The yen, which had strengthened as the market reacted to the BOJ’s view of price expectations, weakened after Kuroda’s comments. It traded at 110.97 against the dollar as of 5 p.m. in Tokyo. Kuroda said the BOJ is watching the currency markets closely.

With the economy growing and inflation slowly but steadily rising, some investors had started to bet that the BOJ is nearing the point where it begins to normalize its ultra-loose monetary policy. The yen gained strength after the BOJ cut its bond purchases earlier this month.

In his news conference, Kuroda reiterated that changes to the bond-buying operations don’t imply shifts to its policy stance, adding that the BOJ’s primary objective is the yield curve on Japanese government bonds, not the volume of its asset purchases. Kuroda also suggested the yen’s recent move may have resulted from broad dollar weakness, particularly against the euro.

“With the economy ticking over fairly well but inflation still far from the 2-percent target, the last thing the central bank needs now is a damaging rise in the yen. Bloomberg Economics’ s view is that the BOJ will keep policy on hold in the near term,”  economist Yuki Masujima said.

“The decision makes it clear that the BOJ doesn’t want any noise about early tightening now,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG and a former BOJ official. “The BOJ could have raised its growth forecast, given recent economic data, but it didn’t because it’s fearful of fueling speculation of policy normalization.”

Some economists do see tightening on the horizon. Nearly half of those surveyed by Bloomberg said they expected the first move to come later this year. And even a minority of BOJ policy-makers are raising the need for future discussions on normalizing policy, though they agree that the stimulus program must continue unchanged for some time, according to people familiar with central bank’s discussions.

The BOJ is lagging behind its global peers in normalizing policy after years of unprecedented stimulus. The Federal Reserve is expected to continue raising rates this year, and some European Central Bank officials are calling for the end of asset purchases ahead of a policy meeting later this week. The Bank of Canada raised its overnight rate target last week.

The BOJ appears to be gaining confidence in its view of inflation, but that doesn’t mean a policy change is coming soon, said Maiko Noguchi, a senior economist at Daiwa Securities Co. and a former BOJ official.

“What the BOJ wants to see is inflation, excluding fresh food and energy, steady at around 1 percent,” she said. “I think that will be when talk of policy adjustment comes up. But it will take a bit more time to get there.” This gauge was at 0.3 percent in November.


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