BOJ Kuroda: Too Early To Mull Adjusting Yield Curve, Talk Exit

     TOKYO (MNI) - It is too early to consider tweaking the current flat bond

yield curve or allowing interest rates to rise in Japan as inflation remains

slow despite solid economic growth, Bank of Japan Governor Haruhiko Kuroda said

Tuesday.

     He also told a news conference after the bank's two-day policy meeting that

it is also premature to have a formal debate on how the central bank should

unwind its large-scale monetary stimulus.

     "Since we began aggressive monetary easing, economic conditions have

improved but the consumer price increase is only at 0.7% and far from the 2%

price stability target," Kuroda said.

     "It will be worth considering adjusting the yield curve as prices rise but

it is too early to have a specific debate at this point," he said.

     "Given current economic fundamentals, there is no need for interest rates

to rise or allow higher interest rates now."

     Kuroda said the BOJ board's median GDP forecast of 0.7% for fiscal 2019

does not mean the economy is likely to slump, adding that it sometimes grows

well above its growth potential but slows down other times. The BOJ estimates

the Japanese economy's potential at between 0.5% and 1.0%.

     Generally speaking, with other factors being equal, the yen will depreciate

if the BOJ continues massive asset purchases and keeps interest rates near zero

while other major central banks begins to unwind monetary stimulus, Kuroda said.

     "But other factors do not stay the same and foreign exchange rates do not

move only on the differences in monetary policy stances," he said.

     The governor repeated his earlier remarks that the BOJ board will debate an

exit strategy on ways to reduce massive monetary stimulus only when it can see a

good prospect for achieving the 2% inflation target or the target has been

actually achieved.

     Kuroda said the BOJ's purchase of ETFs (exchanged-traded funds) is part of

its current easy policy and thus it is aimed at lowering risk premiums and

stimulating the economy.

     "The actual pace of purchases of ETFs fluctuates," depending on market

developments, he said, adding that the BOJ "will continue conducting appropriate

ETF purchases."

     He also noted that the balance of ETFs held by the BOJ accounted for only

3% of the total volume of securities listed on the Tokyo Stock Exchange.

     In response to questions, Kuroda denied that technological development is

putting a lid on wage growth.

     "The situation is different in Japan than in the U.S., where innovation and

immigration are not limiting wage growth," he said. "In Japan, wages are showing

modest growth but companies are not reflecting higher costs in prices due to

uncertainty over economic growth prospects."

     Asked about Prime Minster Shinzo Abe's call for a 3% wage hike for the next

fiscal year, Kuroda said he hopes labor and management will seek a virtuous

cycle in wages.

     The BOJ will continue its "powerful monetary easing" following the Lower

House election on Oct. 22, in which Abe led the ruling coalition to win a

two-thirds majority in the chamber, he said.

     Asked about what he would request of the the government, Kuroda repeated

his earlier comments that the government must win market confidence through its

fiscal reforms.

     Abe is expected to continue his reflationary policy mix of aggressive

monetary easing, increased fiscal spending and structural reforms, although the

pace of reforms in public pension and medical services as well as labor

practices remains slow, limiting a rise in the economy's growth potential.

     When Abe dissolved the Lower House and called an early election late last

month, he sought voter views on his proposal for a "drastic shift" in government

policy toward using the planned sales tax hike to fund new program spending

totaling Y2 trillion.

     Initially, the government planned to spend Y4 trillion of the estimated tax

revenue increase from raising the sales tax rate to 10% to pay down the debt and

Y1 trillion on improving social security programs.

     Abe said he has decided to change the plan and won't use much of the tax

revenue on repaying the huge public debt -- a move economists said would further

delay the process of fiscal consolidation and reduce the flexibility of fiscal

policy.

     Earlier on Tuesday, the BOJ board decided in an 8-to-1 vote to maintain its

current monetary easing stance under the yield curve control framework it

adopted in September last year.

     In addition, recent weak price data prompted the board to lower its

projections for consumer prices in fiscal 2017 and 2018, but the BOJ stuck to

its latest timeframe that it can achieve its 2% inflation target "around fiscal

2019" ending in March 2020.

     Under the yield curve control framework, the BOJ will seek to stabilize the

10-year government bond yield, the benchmark for long-term borrowing costs, at

around zero percent and keep the overnight interest rate at -0.1%.

     Board member Goushi Kataoka, who joined the board in July, dissented for

the second straight meeting, although he didn't propose any specific policy

action.

     Kuroda said Kataoka was against the board's inflation outlook, arguing the

year-on-year rise in the consumer price index is unlikely to move toward the 2%

target next year onward.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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