Kuroda hints at shift in think­ing on mon­e­tary pol­icy's power

The Pak Banker - - FRONT PAGE -

Al­most three years af­ter tak­ing the helm at Ja­pan's cen­tral bank, Gov­er­nor Haruhiko Kuroda has hinted that his view on the power of mon­e­tary pol­icy has shifted, af­ter an un­prece­dented stim­u­lus pro­gram failed to achieve his in­fla­tion tar­get.

"It's not that the mon­e­tary base alone will pull up in­fla­tion or in­fla­tion ex­pec­ta­tions promptly," Kuroda said in par­lia­ment on Tues­day. "We aim to raise prices through an in­crease in in­fla­tion ex­pec­ta­tions and a tighter gap in sup­ply and de­mand un­der QQE," he said, re­fer­ring to qual­i­ta­tive and quan­ti­ta­tive eas­ing mea­sures.

The re­marks con­trast with the op­ti­mism Kuroda showed as he be­gan his record mon­e­tary stim­u­lus pro­gram in April 2013, when he made a mon­e­tary-base ex­pan­sion tar­get the cen­ter­piece of his strat­egy. Three years ago he said this tool was "the most ap­pro­pri­ate" way to reach the 2 per­cent in­fla­tion goal and that "mon­e­tary pol­icy alone" could achieve this.

"Kuroda has no choice but to ad­mit ex­pand­ing the mon­e­tary base can't achieve the price tar­get af­ter adopt­ing the neg­a­tive rate pol­icy to spur in­fla­tion," said Toru Sue­hiro, a se­nior mar­ket econ­o­mist at Mizuho Se­cu­ri­ties Co. "His com­ments sup­port the grow­ing view that the BOJ will tar­get in­ter­est rates af­ter reach­ing the limit of bond pur­chases."

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