REPEAT: BOJ Kuroda - Outflow Hit Worry For Developing Econs

Repeats Story Initially Transmitted at 01:19 GMT May 29/21:19 EST May 28

     TOKYO (MNI) - Bank of Japan Governor Haruhiko Kuroda voiced concern

Wednesday over the adverse impact sluggish inflation and low interest rates in

advanced economies is having on emerging and developing economies.

     Sluggish inflation developments and low interest rates "in advanced

economies could amplify capital flows into emerging and developing economies

where inflation and interest rates tend to be higher," Kuroda told the 2019

BOJ/Institute for Monetary and Economics Studies Conference.

     However, Kuroda warned, "They also carry the risk of economic disruptions

such as a sudden outflow of capital or losses by borrowers due to exchange rate

fluctuations."

     "Recently there has been a growing awareness among developing and advanced

economies of the potential adverse impact of volatile capital flows," Kuroda

added.

     Other key points from Kuroda's speech:

     --Central banks need to keep real interest rates below the natural rate of

interest in order to stimulate the economy.

     --Kuroda, however, said, "This conventional policy framework currently

faces two major challenges."

     --He also said, "The first challenge concerns the question to what extent

policy makers should rely on the natural rate as a benchmark for monetary policy

conduct. This problem is partly associated with the difficulty of measuring the

natural rate of interest."

     --"Various recent trends in a range of estimates of the natural rate of

interest suggest that the current level appears to be much lower than before,

giving rise to concerns about a secular decline," Kuroda said.

     --He also said that the other major challenge is related to the stability

of long-term inflation expectations under "missing inflation... In fact, a good

number of advanced economies have experienced very sluggish price developments

in spite of significant improvements in economic activity."

     --"Central banks should continue examining how best to manage inflation

expectations, while securing stability in economic and financial conditions,

within the flexible inflation targeting framework," Kuroda said.

     --"While policy makers have developed a wide range of unconventional policy

tools, their effectiveness and transmission mechanisms may differ depending on

financial conditions and economic structure," Kuroda said.

     --Kuroda pointed to "reversal interest rate" but said, "While empirical

studies on this issue have been accumulating, they are not conclusive about the

nature of risks including their probability distribution."

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com