April 3, 2018 / 6:43 AM / 6 months ago

BOJ's Kuroda says politics won't get in way of exiting easy policy

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said politics won’t get in the way of exiting ultra-loose monetary policy, signaling the central bank’s resolve to whittle down stimulus when inflation hits its elusive 2 percent target.

Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a news conference at the BOJ headquarters in Tokyo, Japan March 9, 2018. REUTERS/Toru Hanai

Kuroda was reappointed for another five-year term by premier Shinzo Abe, who hand-picked the former top currency diplomat in 2013 to deploy aggressive monetary easing as one of three arrows of his “Abenomics” policies to reflate growth.

Analysts doubt whether the BOJ could dial back its massive stimulus program even if inflation hits its target as many lawmakers, including Abe himself, have voiced hope the bank keeps borrowing costs ultra-low.

“The BOJ is of course not oblivious to politics. But the purpose of our monetary policy is to achieve our price target and healthy economic growth,” Kuroda told parliament on Tuesday.

“When we need to debate an exit from easy policy, our decision won’t be swayed by the political situation,” he said, when asked by an opposition lawmaker whether the BOJ could hold off on normalizing policy under pressure from Abe.

Kuroda said the BOJ was internally debating an exit strategy but won’t share it with markets until the timing for such a move draws near.

The question of how to shrink the central bank’s huge balance sheet and the timing around short-term interest rate increases would be two key factors for the BOJ to consider when normalizing policy, Kuroda said.

“We can’t say now the timing and order of these steps, as that is something that must be scrutinized by the policy board at the time,” he said.

“Debating an exit strategy now would cause confusion,” he said, stressing that the BOJ will maintain its ultra-easy policy until its inflation is stably above its target.

The central bank chief also said it was premature to debate when and how the BOJ could slow its purchases if exchange-traded funds (ETFs).

Under its yield curve control (YCC) policy, the BOJ guides short-term interest rates at minus 0.1 percent and long-term rates around zero percent via huge purchases of government bonds and risky assets.

Kuroda has rebuffed calls to whittle down the BOJ’s massive stimulus, with some lawmakers and academics warning of the rising cost of prolonged easing such as the hit to bank profits from near-zero rates.

Kuroda’s second term begins on April 9.

Japan’s economy is expanding steadily but consumer inflation hovers around 1 percent, well below the BOJ’s target, as companies remain reluctant to raise prices for fear of scaring away cost-sensitive consumers.

Additional reporting by Tetsushi Kajimoto; Editing by Chang-Ran Kim & Shri Navaratnam

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