BoJ chief talks down QE exit speculation

TOKYO: Bank of Japan governor Haruhiko Kuroda yesterday tamped down speculation that the central bank could tighten its monetary grip earlier than expected, saying inflation was still too weak for discussion of an end to large-scale stimulus.

Members of the central bank’s Policy Board decided to keep unchanged targets for both short-term and long-term interest rates after a two-day meeting, and maintained their forecasts for the country’s economic and price growth in the year ending in March 2019.

“It is too early to begin discussing the timing for an exit because inflation is still so far from our 2% target,” Kuroda said at a post-meeting press conference.

Kuroda’s words were under particular scrutiny after a recent jump in long-term interest rates and the yen’s strength in reaction to a reduction in the central bank’s offers to buy government bonds earlier this month.

The move fanned speculation among investors that the BoJ is preparing to join the US Federal Reserve and the European Central Bank in tightening policy as the economy shows signs of strengthening, a view Kuroda dismissed.

“We will persistent with monetary easing. Our day-to-day market operations are under no circumstances a sign of future policy decisions,” he said.

With the core consumer price index, a measure of inflation that excludes volatile fresh food prices, still rising only 0.9% year-on-year in the latest available nationwide data for November, the central bank decided to stand pat for the time being.

The board voted to keep unchanged its so-called yield curve control consisting of a short-term policy interest rate of -0.1% and government bond purchases aimed at guiding the 10-year yield to around 0%.

It kept a loose pledge to add to the central bank’s bond holdings by about 80 trillion yen ($720 billion) annually and maintained its purchases of exchange-traded funds and other risky assets.

Policymakers also maintained their forecast for real gross domestic product growth of 1.4% and an inflation rate of 1.4% in fiscal 2018, and kept expectations for inflation to reach 2% in fiscal 2019 in the central bank’s quarterly report on the economic outlook.

“The inflation forecast continues to be rather optimistic,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

“Most private sector economists say prices won’t even rise 1% through fiscal 2019. And if we do see inflation edge up, financial markets would once again get roused over an exit strategy, which could have a negative effect on the economy and prices,” he said.

One way the central bank hopes prices will gain upward momentum is through the nationwide labour-management annual wage negotiations that kick off this week.

Prime Minister Shinzo Abe has promised to lower corporate tax rates for businesses that raise wages in the hope that it will spur household spending, which remains the Japanese economy’s soft spot amid robust exports and capital expenditure.

The continuation of current easing measures was approved by an 8-1 vote, with board member Goshi Kataoka dissenting for a fourth straight meeting.

He argued that it was desirable to reach the inflation target by fiscal 2018, a year earlier than currently expected, and that the central bank’s bond purchases should target yields on bonds with maturities of 10 years and longer.