MNI: BOJ Kuroda: To Keep Easy Policy Despite Econ Pickup

--Kuroda Says No Need To Change Yield Curve Or Cut ETF Buying

     TOKYO (MNI) - Bank of Japan Governor Haruhiko Kuroda on Tuesday vowed to

continue monetary easing until 2% inflation is anchored, dismissing the

suggestion that the bank may scale back its large monetary stimulus as the

economy recovers and inflation expectations pick up.

     "There is still considerable distance toward achieving the 2% inflation

target," Kuroda told a news conference after the bank's two-day policy meeting.

"We are not at the stage of considering an exit from monetary easing."

     On Tuesday the BOJ slightly upgraded its assessment of inflation

expectations as the board has judged the price outlook among firms and

households has stopped falling.

     "Inflation expectations have been more or less unchanged," the BOJ said.

Previously, it said inflation expectations had been "in a weakening phase."

     In theory, when inflation expectations rise, real interest rate will fall

and reinforce the effects of monetary easing. That would raise speculation that

the central bank would adjust the degree of its easy policy.

     But Kuroda told reporters, "I don't think we need to change the yield curve

control target at all when inflation expectations rise"

     Asked about the slow progress in guiding low inflation to a stable 2%, the

governor said prices and wages move in tandem in Japan, and thus slow wage hikes

have led to slow retail price increases.

     "Steady wage increases are necessary to achieve 2% inflation," he said,

adding he hopes firms will raise wages for the coming fiscal year starting in

April.

     At the request of Prime Minister Shinzo Abe, Japan's main business lobby

Keidanren has urged its members to raise wages by 3% for fiscal 2018 but it is

uncertain how much total average wages will be raised.

     Annual wage negotiations at major companies are settled around mid-March,

setting an overall trend, although smaller firms may not necessarily follow

suit.

     BOJ economists are watching how much average base wages will be increased

following a 0.48% increase in the previous year, when total average wages rose

1.98% on year.

     While goods prices have been rising in Japan in line with higher

international markets, service prices are weaker, compared to those in other

advanced economies, because service prices are largely set by domestic factors,

Kuroda said.

     "But as the economy continues to recover and labor conditions remain tight,

wages will increase and push up the prices for labor-incentive services," he

predicted.

     In response to questions, Kuroda repeated that the BOJ's operations to buy

Japanese government bonds don't indicate any future policy stance.

     "The scale of bond buying rises and falls, depending on developments in

interest rates, as the BOJ is buying bonds to form an ideal yield curve," he

said.

     The timings and amounts of the bond buying operations depend on market

conditions, he said.

     On Jan. 9, the BOJ reduced the scale of its purchase of super long-term

JGBs to prevent a further drop in bond yields caused by tight supply and demand

conditions.

     However, this move was interpreted to mean by some market participants that

the BOJ might be considering tapering and caused the yen to appreciate.

     But Kuroda said the phenomenon was a weaker dollar against the euro and

other currencies and not a stronger yen. The BOJ wants to avoid a sharp yen rise

as it lowers exporter profits, dampens domestic stock markets and exert downward

pressure on consumer prices through lower import costs.

     "Foreign exchange rates fluctuate due to various factors and we are always

monitoring forex moves," he said.

     The BOJ decides the amount of each JGB buying operation for the purpose of

forming a yield curve that is suitable for the economy and the BOJ's inflation

target, he said, adding the amount is influenced by market conditions.

     Fluctuations in foreign exchange rates are unlikely to hamper the BOJ from

conducting necessary bond purchase operations, he said.

     Kuroda said he doesn't see the need to review the scale of the BOJ's

massive purchases of ETFs (exchange-traded funds), currently at Y6 trillion

annually, even though the uncertainty over global growth is easing.

     "ETF buying is part of the policy framework for achieving the 2% price

target," he said, "ETF buying is aimed at lowering risk premiums and it is

currently playing a major role."

     Kuroda also said the BOJ latest more upbeat assessment of overseas

economies has no direct impact on its ETF purchases.

     The summary of opinions expressed by BOJ board members at their Dec. 20-21

policy meeting showed that some board members cautioned against keeping large

monetary stimulus for too long.

     "Amid the situation of the inflation rate increasing toward 2% and the

economy's medium- to long-term growth potential rising going forward, the

effects of monetary easing measures will be enhanced," one member said.

     "In conducting monetary policy, it will be necessary to take into account

such changes in the environment as well as the side effects of the measures."

     A different member also warned, "With regard to the purchases of risky

assets including exchange-traded funds (ETFs), given that stock prices and

corporate profits have substantially improved and are expected to continue to

develop firmly going forward, their policy effects and the possible side effects

should be examined from every angle." the summary said.

     Kuroda said the need to review the bank's ETF purchases was a minority

opinion among the board.

     Earlier on Tuesday, the BOJ said its nine-member 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 in 2016.

     No change in monetary policy was widely expected. The BOJ believes large

monetary stimulus is still needed to guide below 1% inflation toward its 2%

price stability target.

     The BOJ board also maintained its medium-term growth and inflation

projections, repeating what many see as an optimistic outlook that the bank can

hit the inflation target "around fiscal 2019."

     Under the yield curve control framework, the BOJ is seeking 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%.

     The BOJ's asset purchases, which are not the main policy target any longer,

will be maintained at the current pace. The outstanding amount of its JGB

holdings will increase about Y80 trillion annually, but the pace has slowed to

around Y60 trillion in light of the recent drop in yields.

     "The purchase amount is a guideline, not a target," Kuroda said.

     The governor repeated his earlier remarks that there is no need to change

the bank's 2% inflation target or review its policy coordination accord with the

government announced five years ago.

     Seeking 2% inflation helps stabilize forex markets because it is a common

goal among major central banks, he said, adding that targeting zero inflation

would cause deflation.

     Asked about the qualifications of a person who might succeed him as central

bank governor later this year, Kuroda declined direct comment but said that

generally speaking, a central bank chief must have a network of international

contacts and must also understand both the logics and practice of monetary

policy.

     He also declined comment on expectations that the government will reappoint

him to the job for another five-year term. His current term ends on April 8.

--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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