Kuroda Pledges Bolder Action as Bank of Japan Governor: Economy
Haruhiko Kuroda said that the Bank of Japan (8301) will do whatever is needed to end 15 years of deflation should he be confirmed as governor and indicated that open-ended asset purchases could start sooner than next year.
“I would like to make my stance clear that we will do whatever we can do,” Kuroda, president of the Asian Development Bank, said at a confirmation hearing in the parliament in Tokyo today. The central bank hasn’t bought enough assets and should consider buying large amounts of longer-term bonds, he said.
Prime Minister Shinzo Abe’s nomination of Kuroda has spurred forecasts for more aggressive easing after Masaaki Shirakawa exits the job on March 19, with the yield on 5-year government bonds hitting a record low today. The opposition Democratic Party of Japan, the largest party in the upper house, has signaled it will back Kuroda, easing his passage through a split Parliament.
Kuroda will need “to show that he’s radical at the central bank’s two meetings in April, otherwise markets will be very disappointed,” said Masamichi Adachi, senior economist at JPMorgan Securities Asia in Tokyo and a former BOJ official. He must convince policy board members “to change their mindset by 180 degrees,” Adachi said.
The “scale and scope” of the assets purchased by the central bank so far are not enough to achieve a 2 percent inflation target, Kuroda said. The central bank currently buys government debt maturing up to three years, as well as exchange- traded funds and other risk assets.
Kuroda said he would consider bringing forward open-ended purchases, due to start next year.
The Nikkei 225 Stock Average (NKY) pared gains and the yen strengthened after Kuroda said that the BOJ should refrain from directly underwriting government debt -- highlighting the potential for even expanded action by the central bank to disappoint some investors.
The yen was little changed at 93.60 per dollar as of 5:47 p.m. in Tokyo. The stock benchmark closed up 0.4 percent after earlier rising as much as 1.4 percent. The yield on 5-year government notes fell to 0.1 percent.
While meeting a 2 percent inflation target will not be easy, Kuroda is confident that the BOJ can do it, he told lawmakers. He added that a two-year time-frame is the global standard for such goals.
“In a sense, it would be natural for the BOJ to buy large amounts of longer maturity government bonds,” Kuroda said. “But to do this the central bank needs to examine the market developments at that time, and be careful to minimize potential side-effects in achieving the 2% price stability target.”
Nomura Holdings Inc. and Mizuho Securities Co. say more easing could come as soon as the first policy meeting under the new BOJ leadership, scheduled for April 3-4.
Abe has nominated Kikuo Iwata, an economics professor who backs greater government oversight of monetary policy, and BOJ Executive Director Hiroshi Nakaso for two deputy governor posts.
Iwata said in a speech in Tokyo today that the BOJ has been too quick to warn of the risk of asset price bubbles and is wrong to say that expanding the monetary base won’t raise prices.
Kuroda, by contrast, said that he doesn’t think just expanding the monetary base will be effective and stressed that it’s important to consider the “quality” as well as quantity of assets that the BOJ buys.
“Further easing policies are needed,” he said. “However, the policy board will decide on the specifics of doing this based on market conditions and economic trends.”
Ending deflation will be good for the global economy, Kuroda said, adding that Japan’s easing is not aimed at weakening the yen -- a restatement of official comments aimed at easing global concern over the currency’s decline of about 12 percent against the dollar in three months.
Kuroda said that purchases of foreign bonds by the central bank would be difficult, echoing comments by Abe last month after Group of 20 nations pledged to refrain from targeting exchange rates for competitive purposes.
Kuroda said previously that falling prices exacerbate real debt burdens, and give an incentive to companies and households to postpone spending. Consumer prices excluding fresh food fell 0.2 percent in January. The price gauge hasn’t advanced 2 percent -- the central bank’s new target -- for any year since 1997, when a national sales tax was increased.
He said that, while a self-imposed rule limiting bond purchases is not something adopted by other central banks, the BOJ shouldn’t “buy bonds directly or monetize debt.”
The BOJ has pledged to keep the value of its bond holdings below the amount of cash in circulation, excluding a 76 trillion yen ($814 billion) asset-purchase fund which it counts separately.
While Shirakawa established the asset-purchase fund and an unlimited bank-loan financing program, he failed to encourage inflation, instead warning repeatedly about the dangers of excess stimulus.
Elsewhere in the Asia Pacific region, inflation in South Korea and Australia slowed in February, while Australian home- building approvals unexpectedly declined for a second month in January, reports showed today. Chinese property stocks tumbled after a March 1 announcement of measures to cool the property market.
U.K. house prices rose in February for the first time in nine months, Hometrack Ltd. said. Euro-area producer prices probably increased, according to a Bloomberg survey. Jobless claims in Spain probably climbed last month from January, a separate Bloomberg survey showed.
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