Trial now

Barclays on BRCP: Maintain 50Bp Hiking Pace


10Y Call Spd


Remains Vulnerable


Oil Up As Saudi Raises Prices, Omicron Fears Subside


Fades Lower

--Logical To Debate Exit in Fiscal 2019 But 2% CPI Target Elusive
By Hiroshi Inoue
     TOKYO (MNI) - Recent remarks by Bank of Japan Governor Haruhiko Kuroda
offer no fresh insights into the bank's eventual exit from large-scale monetary
     The BOJ board's timeframe of guiding low inflation to a stable 2% remains
an elusive target.
     Kuroda's comments at a Diet committee on Friday on the possibility of
discussing an exit strategy "around fiscal 2019" were based on what many
economists consider an overly optimistic outlook, that annual inflation will
reach 2% around that time from just under 1% now.
     The governor has been saying the board will debate ways to unwind massive
asset purchases aimed at keeping very low interest rates if prices continue to
rise toward the bank's 2% target, but that "it would not be appropriate to
discuss the specifics at this point" as it would confuse market participants.
     He basically repeated these points at his confirmation hearing at the Lower
House Steering Committee on Friday for his reappointment to a second five-year
term as BOJ governor.
     Kuroda didn't say how the bank should reduce large monetary stimulus. He
has often said whether it should raise interest rates first or trim asset
purchases first will depend on the economic and financial conditions at the
     However, he did say when the board was likely to discuss any exit plans but
it was a logical conclusion from the latest, often-delayed timeframe of
achieving 2% inflation.
     "I'm convinced that it will reach 2% around fiscal 2019," Kuroda said,
repeating his earlier remarks.
     "Naturally we will be debating an exit around that time."
     At the same time, Kuroda also told the committee that discussing the issue
at this point would confuse the markets.
     "We will begin debating an exit strategy as we get close to the exit,
seeking necessary communication with the markets," he said.
     But the timing of such debate depends on how steadily the core consumer
price index (excluding fresh food) will rise toward the 2% target.
     The national average core CPI rose 0.9% on year in January, led by gradual
gains in goods prices, while service prices remained weak, largely due to slow
wage hikes and regulated healthcare costs.
     The core-core CPI (excluding fresh food and energy) rose just 0.4% on year
in January, indicating that it takes considerable time for the underlying
inflation trend to pick up and that the recent increase has relied heavily on
higher fuel and utility costs.
     The estimated timing of hitting the 2% target, which has been delayed six
times, may be pushed back again from "around fiscal 2019" as inflation remains
slow to respond to sustained economic growth.
     Kuroda's comments on Friday didn't imply his views have changed that the
BOJ needs to maintain aggressive easing launched nearly five years ago and that
it's premature to discuss any exit strategy as Japan is still far from the 2%
price stability target, people who are familiar with BOJ thinking said.
     "It is very unlikely" that the BOJ would have no discussion on how to
unwind easing "around fiscal 2019" if the annual inflation rate was reaching 2%
around that time, one of the people said.
     But he reminded that the BOJ would be still continuing easing even if
inflation touched 2% because it must ensure inflation is well anchored around
that level and not slipping back to deflation.
     BOJ officials were not surprised to hear Kuroda's latest comments, which
they thought were "logical," but they are concerned about a further appreciation
of the yen after the currency firmed on his comments, according to two people
who are familiar with BOJ thinking.
     The BOJ doesn't have effective tools to stop a sharp rise in the yen, which
would hurt exporter profits and dampen overall business sentiment. While a
stronger yen raises Japan's purchasing power, it will also lower import costs,
exerting downward pressure on CPI.
     But to be fair with Kuroda, the dollar was already shaky before he spoke at
the Diet committee, hit by the announcement by U.S. President Donald Trump that
he would impose stiff tariffs on imports of steel and aluminum and keep them
"for a long period of time."
     The dollar traded around Y105.65 in Asia on Monday after falling to Y105.26
in New York on Friday for the highest level since November 2016.
     The current yen level is much stronger than Y110.18, the average of the
dollar/yen exchange rate forecasts for fiscal 2017 provided by large
manufacturers polled in the BOJ's latest quarterly Tankan business sentiment
survey released in December.
     Nobody knows for sure as to whether Kuroda had any intention when he made
the comment on the possibility of discussing an exit strategy "around 2019."
     BOJ officials believe he simple had to provide some information to the
members of the Diet committee as they kept pressuring him to comment on any exit
guidelines that the BOJ board might have, according to the people who are
familiar with BOJ thinking. 
     In the past, lawmakers urged the BOJ to maintain the easy policy to
completely overcome deflation, but these days, some of them are calling on the
bank to consider unwinding the easing program as it is squeezing profits for
lenders and slashing returns on fixed-income investments by pension fund
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: