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Free AccessREPEAT: 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
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.