Kuroda Says Bank of Japan Won’t Limit Easing to Two Years

Governor Haruhiko Kuroda said the Bank of Japan will not set a time limit for easing and will continue until it achieves sustainable inflation.

“It is not appropriate to say that the monetary easing will only last for two years,” Kuroda said in a speech in Tokyo today. “The bank will continue with monetary easing, aiming to achieve the price stability target of 2 percent, as long as it is necessary.”

The yen weakened to the lowest level since April 2009 yesterday after Kuroda said this week he had taken all necessary measures for now to achieve 2 percent inflation in two years. Goldman Sachs Group Inc. boosted its outlook on Japanese shares on the Bank of Japan’s “credible commitment” to beat deflation, with the Nikkei 225 Stock Average up almost 30 percent this year.

“This is war against the deflationary sentiment that’s become entrenched among people and corporations in Japan,” said Shogo Fujita, the chief Japanese bond strategist in Tokyo at Bank of America Corp. “This deflationary mind won’t change unless Kuroda shows a decisive stance that he will continue easing until there’s inflation.”

The bank may upgrade its inflation forecast for the 2014 fiscal year to 1.5 percent at its meeting on April 26, according to people familiar with the central bank’s discussions, who asked not to be identified because the talks were private.

“In our view, the latest decisions include all the necessary measures to achieve the 2 percent target” within two years, Kuroda said in his first speech since becoming governor last month. The bank “will not hesitate to make adjustments as appropriate.”

Unprecedented Easing

At his first policy meeting, Kuroda pledged last week to double the monetary base in two years by buying about 7.5 trillion yen of bonds a month, equivalent to about 70 percent of new government bond issuances. Such unprecedented asset purchases have increased volatility in the market.

The yield on the 10-year bond touched a record low of 0.315 percent on April 5, the day after the BOJ’s policy announcement, and then surged to almost double that level in the same session. Also that day, shifts in bond futures triggered circuit breakers on the Tokyo Stock Exchange.

Benchmark 10-year bond yields were 0.620 percent at 3:23 p.m. in Tokyo. The yen was at 99.43 per dollar, down about 13 percent for the year.

The bank’s purchases of bonds might not be processed smoothly, as they go beyond the market’s convention, Kuroda said, and called for the cooperation of market participants.

In an effort to explain the new policy, the BOJ held a meeting with representatives of financial institutions yesterday and separately announced schedules of bond auctions.

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