May 15, 2018 / 7:16 AM / 12 days ago

BOJ governor signals room to hike yield target before price goal met

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda on Tuesday signaled the possibility the central bank could raise its long-term interest rate target before inflation hits its elusive 2 percent target.

FILE PHOTO: Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a news conference at the BOJ headquarters in Tokyo, Japan, in this photo taken by Kyodo April 27, 2018. Mandatory credit Kyodo/via REUTERS

“It’s not as if we will defend the 10-year yield target of around zero percent at all costs,” Kuroda told parliament, when asked whether the BOJ would keep the yield target at that level until inflation hits 2 percent.

But Kuroda added he had “absolutely no plan” to raise the yield target for the time being with inflation still distant from 2 percent.

Under its yield curve control (YCC) policy adopted in 2016, the BOJ guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

Kuroda is facing growing calls, including from within the BOJ, to be more mindful of the rising cost of prolonged easing such as the hit to bank profits from years of ultra-low rates.

Kuroda said it was true there were some discussions within his board on the side-effects of maintaining a massive stimulus program.

But there was no direct link between such discussions and the BOJ’s decision last month to remove any timeframe for hitting its 2 percent inflation target, he added.

Kuroda also brushed aside concerns held by some market participants that the BOJ could struggle to cap long-term rates around zero percent as global bond yields creep up.

“It’s true long-term rates in advanced economies have been rising since the outset of this year, and that this is putting upward pressure” on Japanese yields, Kuroda said.

“But Japanese long-term rates have been moving around zero percent under our YCC framework,” he said.

“With the adoption of YCC, the BOJ’s policy has become more flexible and sustainable,” Kuroda added.

Japan’s economy, the world’s third largest, has grown for eight straight quarters through end-2017, the longest continuous expansion since the 1980s.

But core consumer inflation stood at 0.9 percent in March from a year earlier, well below the BOJ’s target, as slow wage growth keeps consumers from increasing their spending.

Reporting by Leika Kihara; Editing by Chang-Ran Kim and Sam Holmes

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