MNI POLICY: Kuroda: BOJ Eyeing Impact of Solvency on System

The Bank of Japan must remain aware of the risk that the financial system could be affected when the challenges for firms shifts from a liquidity problem to a solvency one, Governor Haruhiko Kuroda said Wednesday.

Speaking via the web to business leaders in Osaka City, Kuroda said, "It is expected that stability of the financial system will not be hampered significantly and the economy will continue to be supported from the financial side."

Commenting on the scale of JGB issuance and central bank purchases, Kuroda said the increase sale of bonds by the government reflected "unprecedented large-scale economic measures" address Covid-19.

Kuroda said it's premature to talk about an exit strategy from easy policy but the BOJ will communicate with markets in an appropriate manner if the price target is set to be achieved, Kuroda said.

"The BOJ has maintained interest rates at low levels by actively purchasing JGBs. These active purchases are based on the need to conduct monetary policy, and recently, given the impact of Covid-19, the aim of such purchases is to maintain stability in the bond markets," Kuroda said.

He added, "The BOJ also intends to support the economy and fulfill its role of achieving price stability. In this manner, a policy mix of fiscal and monetary policies can be achieved effectively while the government and the BOJ fulfill their respective roles."

FED THINKING

Kuroda noted that the BOJ's stance of achieving the 2% price target in a stable manner is consistent with the U.S. Federal Reserve's thinking, as Tokyo had adopted the "overshooting commitment", vowing to enact monetary policy until achieving the 2% price target in a stable manner.

The BOJ "would not hesitate" to take additional easing measures if necessary, Kuroda said.