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REPEAT: Ex-BOJ Kiuchi: BOJ To Face Limits Of JGB Buying In May

Repeats Story Initially Transmitted at 07:07 GMT Sep 22/03:07 EST Sep 22
     TOKYO (MNI) - A former Bank of Japan board member said Friday that the BOJ
would face the limits of its ability to buy Japanese government bonds in May
2018 if it continues to buy JGBs at the current annual pace of about Y60
trillion.
     If the BOJ faces the limits of JGB buying, "the liquidity in JGBs would
fall considerably and volatility in JGBs would fall sharply, which in turn would
destabilize the nation's financial system and the economy," Takahide Kiuchi,
whose five-year term on the board ended on July 23, said at Nippon Press Club.
     It would also increase excess risk-taking attitudes and cause major
adjustments of global financial markets, said Kiuchi, who is currently Nomura
Research Institute's executive economist.
     Kiuchi also said that if the BOJ slows the annual pace of JGB buying to Y45
trillion, the limits would be pushed back to August 2020.
     Since April 2015, Kiuchi has continuously proposed that the BOJ slow the
annual pace of its purchases of Japanese government bonds to Y45 trillion from
Y80 trillion. He was one of the four board members who voted against the central
bank governor's proposal to raise the pace to Y80 trillion from a range of Y60
to Y70 trillion in October 2014.
     BOJ Governor Haruhiko Kuroda said Thursday that some market data showed
that the liquidity in Japanese government bond markets is increasing while
market surveys showed some investors believe liquidity levels are still low.
     "Some data showed that functioning in JGB markets is improving, but some
market surveys showed that functioning remains depressed. There is a gap between
market data and surveys but I don't think there are any problems," Kuroda told
reporters after the two-day policy-setting meeting.
     Kiuchi continued to warn against the side-effects of aggressive easing. He
voted against the adoption of a controversial negative interest rate policy in
January 2016 and opposed shifting the policy target to yield curve control from
asset purchases in September 2016.
     The outstanding balance of JGBs held by the BOJ totaled Y437 trillion as
the end of June and the bank's share of outstanding JGBs was 40.27%, up from
39.46% three months before, the latest BOJ quarterly data showed.
     "The 2% inflation goal that the BOJ board is aimed at achieving is
inappropriate and it is too high," Kiuchi said. "The BOJ should shift the price
goal to a medium- to long-term target to ensure the flexibility of monetary
policy."
     Kiuchi also called on the BOJ to change the bank's target for controlling
the long-term bond yield to about five years from the existing 10 years.
     "If the BOJ shortened the 10-year target to five years, it would support
banks' profits [which have been hit by low interest rates] and it would
contribute to shortening the duration of bonds held by the BOJ, which in turn
would ease concern over shocks caused by an exit strategy from the aggressive
easing policy," Kiuchi said.
     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 about a year
ago.
     One of the two new board members, Goushi Kataoka, dissented, arguing
current policy was insufficient to meet the central bank's 2% policy goal by the
current target date of sometime in fiscal 2019, according to the BOJ policy
statement following its meeting.
     Kataoka was quoted as citing "an excess supply capacity in capital stock
and the labor market" as the reason for his objection, but the statement didn't
show that he made any counter-proposals.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com
--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com
--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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