REPEAT: MNI: BOJ Kuroda: No Need To Change Yield Curve Tgt Now

Repeats Story Initially Transmitted at 12:16 GMT Dec 21/07:16 EST Dec 21

     TOKYO (MNI) - Bank of Japan Governor Haruhiko Kuroda said Thursday that

there is no need to change the BOJ's current yield curve control target, which

he called the most appropriate for sustained economic growth, for reaching the

2% inflation goal and for financial system stability.

     But Kuroda also repeated his recent remarks that the BOJ board would

consider conducting additional monetary easing if the momentum toward the bank's

2% price stability target were feared lost.

     "What we have learned gradually in the past one year and three months is

that yield curve control policy can be fully functional, but only time will tell

what shape of yield curve is the most appropriate," he told a news conference

after the bank's two-day policy meeting.

     The BOJ board decided Thursday in an 8-to-1 vote to maintain its current

monetary easing stance under the yield curve control framework it adopted in

September last year.

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

monetary stimulus is still needed to guide inflation -- currently sitting below

1% -- toward its 2% price stability target.

     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%.

     --REVERSAL RATE

     The governor said his recent reference to the "reversal rate" -- the

downside of large-scale monetary easing -- was made in an academic context and

therefore "does not indicate any change in monetary policy."

     In his speech at the University of Zurich last month, Kuroda mentioned a

"reversal rate," referring to the risk that an excessive drop in interest rates

would impair financial institutions' intermediation function. Under these

circumstances, "the effects of monetary easing on the economy reverses and

becomes contractionary," he said.

     His comments triggered speculation in financial markets that the BOJ was

considering beginning to unwind its large-scale monetary stimulus or, at the

very least, that Kuroda had no intention of conducting any further monetary

easing.

     At Thursday's news conference, Kuroda said at this point there were no

problems with financial institutions' intermediary function despite super-low

interest rates guided by the central bank.

     --REGIONAL BANK ISSUES

     Asked about the negative effect of super-low interest rates on regional

banks' profit margins, Kuroda replied that those lenders have structural

weaknesses: they have not developed financial services to differentiate

themselves from other financial institutions and they have excess branches and

employees amid the falling population.

     In the past, Kuroda has said mergers and acquisitions are one option for

boosting the profitability of regional banks.

     He declined specific comment on the Japan Fair Trade Commission's negative

response to proposed mergers among some regional banks in the same prefectures,

but said, "Regional banks are also doing business beyond the boundaries of

prefectures. Their mergers should be considered beyond prefectures."

     On the bank's large-scale purchases of exchange-traded funds (ETFs), at Y6

trillion a year, the governor said the easing measure has had its intended

effect of lowering risk premiums in the stock market, meaning enticing investors

to become more optimistic and take risks.

     Critics have argued the BOJ's ETF buying is distorting the pricing

mechanism of the stock market.

     --NO OVERHEATING NOW

     Kuroda defended the bank's policy stance, saying, "There is no financial

overheating or a bubble."

     Asked about the bank's risk analysis shown in the twice-annual Financial

System Report, he said a red signal on the heat map would not necessarily mean

there is an immediate overheating.

     Kuroda said monetary easing has had its intended simulative effects,

improving employment conditions and boosting corporate profits to record highs.

     While acknowledging the slow rise in inflation, currently at 0.8% in core

CPI (excluding fresh food), Kuroda said consumers appear to be "gradually

accepting" price hikes.

     Labor shortages are restricting business for some firms, but is expected to

promote corporate efforts to increase productivity, he said.

     The Japanese economy's steady recovery this year will continue into next

year, backed by the virtuous circle from higher income to increased spending in

both the corporate and household sectors, Kuroda projected.

     Overseas demand will remain firm to support domestic growth, he said.

     In response to a question, Kuroda said the difference in projections for

U.S. long-term interest rates between market participants and the Federal Open

Market Committee is not causing any problems.

     Asked about the bitcoin boom, Kuroda said cryptocurrencies are not widely

used for financial settlements and thus they are not hampering the conduct of

monetary policy.

     Asked further whether it is a bubble, he said, "It is speculative. The

recent sharp rise on the price chart has been extreme."

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com