MNI 5 THINGS: BOJ Kuroda: Early Exit Debate To Confuse Markets

     TOKYO (MNI) - Bank of Japan Governor Haruhiko Kuroda, who has been

nominated by the government to serve as the central bank chief for a second

five-year term, made the following points Tuesday at his confirmation hearing

held by Upper House Steering Committee. Kuroda's current term ends on April 8.

     -- Kuroda said his previous comments made Friday at a hearing at the Lower

House Steering Committee didn't mean that the BOJ would start unwinding

large-scale easing in fiscal 2019. He said his point was that if the 2%

inflation target was achieved in fiscal 2019, as forecast by the majority of the

BOJ board, the BOJ would debate an exit strategy around that time.

     -- Repeating his earlier remarks, Kuroda said debating an exit strategy way

before there are signs of inflation reaching the bank's 2% inflation target

"would confuse financial markets" as the specifics of unwinding large-scale

monetary stimulus will depend on growth and price conditions at the time. He

added that the BOJ would present its exit strategy "at an appropriate time."

Kuroda noted two key points to be considered in the process of unwinding easing:

how the BOJ will raise the short-term interest rate from -0.1% and how it will

reduce its expanded balance sheet.

     -- Kuroda repeated the bank's assessment that Japan is still far from

achieving the 2% price target but said "the BOJ board expects the 2% target will

be achieved around fiscal 2019." He stressed that achieving the 2% target

remains the top priority for the central bank which has "regrettably" failed to

do so after conducing aggressive easing for nearly five years.

     -- Asked to describe a situation that is not deflationary, Kuroda replied

that wage hikes backed by rising corporate profits as well as improving labor

market conditions are the key to preventing Japan from slipping back into

deflation. He said the 2% inflation target would not be achieved without

continued annual average wage hikes of at least 3%.

     -- On whether the BOJ will need to reduce its huge holdings of JGBs to zero

at the end of the eventual exit from large-scale easing, Kuroda said the BOJ

doesn't need to lower the balance of its bond holdings to zero and that he has

no plans to convert the bank's JGB holdings into perpetual bonds. He also said

he could not imagine a situation under which the BOJ would run out of JGBs to

buy. The BOJ already holds about 40% of the outstanding balance of government

bonds.

     -- Kuroda said that at this point the BOJ is unlikely to raise the negative

interest rate from -0.1% or will suspend the negative interest rate policy,

although that an adjustment of the negative interest rate would be possible in

line with developments in inflation.

     -- Kuroda repeated that achieving the 2% inflation target, which the BOJ

sees as a global standard, should help stabilize foreign exchange markets "in

the long run." (BOJ officials have explained that targeting a lower inflation

rate, like 1%, would trigger an unwanted rise in the yen and run counter to

Japan's bid to reflate the economy.)

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

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

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