Haruhiko Kuroda said he wants to reach 2 percent inflation in two years and pledged to buy more government bonds, underscoring the new Bank of Japan chief’s efforts to accelerate an end to falling prices.
“Achieving the 2 percent inflation target in two years is something that I have in my mind,” Kuroda said today in the lower house of parliament. He said the BOJ may scrap a rule limiting the scale of asset buying and consider purchasing more bonds with longer maturities.
The comments spurred investors’ expectations for more monetary easing, with the yen weakening and benchmark bond yields falling to a near 10-year low. Analysts at banks from JPMorgan Chase & Co. to Barclays Plc expect the BOJ to add stimulus as soon as the next policy meeting on April 3-4.
“The message today was that buying more bonds will be the major tool for easing,” said Takafumi Yamawaki, Tokyo-based chief rates strategist at JPMorgan Chase & Co. “It’s now more certain that the BOJ is going to increase purchases of longer-term debt,” he said, adding that there’s a high chance Kuroda will combine the central bank’s asset-buying fund and outright bond-purchase operations.
The Japanese currency was little changed at 94.18 per dollar as of 1:44 p.m. in Tokyo, after earlier falling to as low as 94.45. The Nikkei 225 Stock Average was 0.6 percent lower, while the yield on Japan’s 10-year government bond touched 0.525 percent, the least since June 2003.
Kikuo Iwata, one of two new BOJ deputy governors, said in the same parliamentary session that the bank should commit to achieving the target for consumer-price increases within two years. He suggested that the BOJ leadership should be prepared to resign if they fail to meet that goal.
Kuroda, who took up his post last week, today reiterated his pledge to do “whatever it takes” to end more than a decade of deflation in Japan, saying that expectations for rising prices would be positive for the world’s third-largest economy.
“Kuroda is saying he wants to achieve the target in two years, so the market’s expectations for further easing will probably stay intact,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “In that sense, the basic trend of higher stocks and a weaker yen will probably continue.”
The BOJ currently buys bonds, as well as exchange-traded funds and other risk assets, through a fund targeted to reach 76 trillion yen ($805 billion) by the end of this year. Under its so-called banknote rule, the central bank has pledged to keep the value of its bond holdings, excluding the asset-purchase fund, below the amount of cash in circulation.
Some analysts doubt whether Kuroda can lift Japan out of economic stagnation.
“It’s a strong pledge from a well-intended man, but I’m not convinced it’s going to work,” Stephen Roach, a senior fellow at Yale University and former non-executive chairman for Morgan Stanley in Asia, said today in a Bloomberg Television interview. “It’s going to take a lot more to bring Japan out of its long slump than just another effort at quantitative easing.”
Consumer-price gains “will never reach 2 percent,” Eisuke Sakakibara, Kuroda’s direct predecessor as Japanese vice finance minister in charge of currency policy in the 1990s, said in a Bloomberg Television interview this month. “This deflation is structural. It’s a result of the integration of the Japanese economy with the rest of east Asia and it has taken place for the last 20 years.”
Kuroda will return to parliament on March 28 at 10 a.m. to testify before the upper house committee on financial affairs, committee chairman Yukihisa Fujita said.