NAGOYA: Bank of Japan Governor Haruhiko Kuroda reiterated that policy makers will be more mindful of the rising cost of prolonged stimulus, though the central bank chief ruled out the chance of a near-term interest rate hike.
Kuroda said there was “no reason” now for the BoJ to follow in the footsteps of its US counterpart in normalising policy with inflation still distant from its 2 per cent target.
The governor, however, said that in keeping monetary conditions loose, the BoJ must now focus more on addressing the fallout of ultra-low rates such as the strains on financial institutions.
“The BoJ fully recognises that, by continuing monetary easing, financial institutions’ strength will be cumulatively affected,” Kuroda said in a speech to business leaders in Nagoya, central Japan, on Monday.
“Although these risks are judged as not significant at this point... the BoJ will scrutinise developments and encourage financial institutions to take action as necessary,” the BoJ Governonr said.
The remarks suggest the central bank will maintain the status quo on monetary policy for the time being, and make only minor tweaks to its programme when needed to address the rising costs of easing.
The key would be to make the BoJ’s stimulus programme as sustainable as possible, so it can keep stimulating the economy without destabilising the banking system, he said.
“Unlike in the past, Japan is no longer in a situation where decisive, large-scale policy is needed to overcome deflation,” Kuroda said, dismissing the chance of deploying another huge stimulus programme even if the economy deteriorates.
“It’s necessary to persistently continue with powerful monetary easing while looking at the positive effects and side effects in a balanced manner.”
The rising cost of prolonged easing was the focus of debate at the BoJ’s rate review in September, with one policymaker warning that there was a limit to how long the stimulus could be sustained, minutes released on Monday showed.
“One member said there was room to make the BoJ’s policy framework more flexible in the future” if the economy continues to expand, the minutes showed.
Subdued inflation has forced the BoJ to maintain its radical stimulus programme even as years of low rates hurt financial institutions’ profits and dried up bond market liquidity.
The central bank took steps in July to make its policy more sustainable, such as allowing bond yields to move more flexibly around its zero per cent target. But the measures have done little to ease the pain on financial institutions. — Reuters
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