June 19, 2018, 11:36 pm
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Kuroda says BOJ will signal exit plan if inflation picks up

TOKYO- Bank of Japan Governor Haruhiko Kuroda said the central bank will telegraph to markets how it plans to exit from ultra-easy policy when conditions for hitting its price goal become robust.

But he said it was premature to debate when the BOJ could whittle down its massive stimulus program, with inflation distant from its 2 percent target.

“We will communicate specifics on how we plan to exit once inflation accelerates toward 2 percent and conditions for hitting our target gradually fall into place,” Kuroda told the upper house of parliament in a semi-annual testimony on Tuesday.

“For now, we don’t think conditions are rife to consider specific timings for an exit,” he said. “The BOJ won’t end its ultra-easy policy before inflation reaches 2 percent.”

Japan’s core consumer price growth slowed in April for a second straight month, underscoring the view weak inflation will keep it from dialing back stimulus any time soon. 

But central bank policymakers have begun brainstorming ways to edge away from crisis-era policy given the rising cost of prolonged easing, such as the pain ultra-low rates is inflicting on financial institutions, sources say. 

Kuroda said that while the BOJ will “patiently maintain powerful” monetary easing, he was mindful of the need to take into account the side effects of its massive stimulus.

“We will guide monetary policy taking into account its side effects such as its impact on financial institutions, particularly regional banks,” he said.

After nearly three years of heavy money printing failed to accelerate inflation to its 2 percent goal, the BOJ revamped its policy framework in 2016 to one better suited for a long-term battle to lift Japan sustainably out of deflation. 

The Bank of Japan on Monday won approval from influential members of the government’s leading advisory panel for its decision to abandon the timeframe it had set for meeting its inflation target.

Prime Minister Shinzo Abe also expressed confidence in the BOJ, signaling the central bank can proceed unimpeded with a dramatic shift in policy it unveiled last month.

In its quarterly outlook report, the BOJ ditched its forecast for when inflation will reach 2 percent, saying this will dispel the notion that the central bank is obliged to ease policy if it pushes back this forecast. 

“We discussed monetary policy and the economic conditions,” Abe said at the end of Monday’s meeting of the Council on Economic and Fiscal Policy (CEFP).

“Private-sector members of the panel said the BOJ is conducting monetary policy appropriately,” he said. “I expect the BOJ to continue to take steps to meet price stability.”

The private-sector members are four academics whose recommendations regularly influence policy because they are considered to be close to the prime minister.

Abe also said the government and the BOJ have reaffirmed their resolve to stick to a joint statement they signed in 2013, under which they agreed to take necessary policy steps to beat deflation.

Under the joint statement, the BOJ agreed to do its utmost to achieve its inflation target at the earliest date possible, while the government pledged to restore long-term fiscal health.

By eliminating its forecast for when it expects inflation to reach the 2 percent price target, the BOJ has effectively made the price target a medium-term goal, some economists say.

BOJ Governor Haruhiko Kuroda said last month this will improve communication and bring it in line with other major central banks.

The US Federal Reserve and the European Central Bank do not issue forecasts for when they expect to reach their price targets.

A government official told reporters on Monday that Abe’s administration is supportive of the BOJ’s decision to follow other central banks by not forecasting when it will meet its price target.

The BOJ has pushed back the target timeframe six times due to Japan’s subdued inflation rate. Analysts have criticized the central banks for being too optimistic in its forecasts. – Reuters 
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