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Repeats Story Initially Transmitted at 11:16 GMT Sep 25/07:16 EST Sep 25
     OSAKA, Japan (MNI) - Bank of Japan Governor Haruhiko Kuroda on Tuesday
vowed to maintain low interest rates for a long time to guide inflation to the
bank's 2% price stability target, but noted the central bank's commitment to
keeping very accommodative financial conditions is not based on a specific
period.
     He also told business leaders in Osaka, western Japan, that the BOJ's
latest policy intention decided in July is accurately understood by market
participants.
     "It is very important to make clear that the BOJ will maintain the current
extremely low levels of short- and long-term interest rates for an extended
period of time," Kuroda said in a speech.
     But he also said the forward guidance "is not based on a specific period of
time."
     --WIDER JGB RANGE
     Later at a news conference, Kuroda said he hoped to see the 10-year
Japanese government bond yield to move in a wider range.
     "Fluctuations in the 10-year bond yield have been limited to a tight range,
which means the functioning of the bond markets is declining. We wouldn't mind
seeing a wider movement of the 10-year yield," he said.
     "It is appropriate for the 10-year bond yield to move widely. In order to
keep the sustainability of monetary policy, the BOJ will continue carefully
watching the side-effects of easy policy and will respond appropriately," he
said without elaborating.
     Kuroda also said that interest rate gap between Japan and U.S. is unlikely
to narrow, and may widen, as the BOJ is committed to keeping the 10-year bond
yield "around zero percent."
     The U.S. Federal Reserve Open Market Committee is expected to raise the
federal funds rate from a range of 1.75% to 2.00% at its two-day policy meeting
ending Wednesday, although the Fed is likely to suspend its rate hikes sometime
in next year.
     At its July meeting, the BOJ board decided in a 7-to-2 vote to make its
long-term interest rate target and asset purchases more "flexible," allowing the
nearly flat Japanese government bond yield to steepen slightly in line with
firmer growth and inflation.
     The BOJ adopted "forward guidance" for the policy rates to show that it is
"strengthening its commitment" to guiding low inflation to its stable 2% target.
This should help the bank "persistently continue" aggressive monetary easing as
the stubborn deflationary mindset lingers among businesses and households.
     Kuroda told reporters that achieving the 2% price stability target is the
most important task for the BOJ, and thus the bank is unlikely to modify its
easy policy before hitting the target.
     At the same time, he said, "I wouldn't rule out the possibility that the we
may change the part about 'an extended period of time' in the forward guidance
in the future."
     In his speech, Kuroda said since it takes time to achieve the 2% price
target, the BOJ needs to maintain the easy policy. But he added that in
continuing with aggressive monetary easing, "we now need to consider both its
positive effects and side effects in a balanced manner."
     --EXTERNAL DOWNSIDE RISKS
     "Overseas economies have continued to grow firmly on the while," Kuroda
said, repeating the bank's latest assessment.
     "Japan's economy is likely to continue its moderate expansion. However,
there are various risks to this baseline scenario, and uncertainties regarding
overseas economies in particular warrant attention."
     "It is necessary to thoroughly examine the extent to which recent
protectionist moves, such as the trade friction between the United States and
China, will affect trade as well as firms' investment activities."
     In Japan, prices have continued to show relatively weak developments
compared to the economic expansion and the labor market tightening, Kuroda noted
but said the mechanism for a rise in inflation itself isn't lost.
     He also repeated his earlier remarks that foreign exchange rates must
reflect economic fundamentals and move in a stable manner. The BOJ will continue
watching the forex impact on the economy, he said.
     --WATCHING SIDE-EFFECTS
     Kuroda also said that the BOJ continues paying attention to the accumulated
effects of prolonged easing on the financial system and banks' profits as the
BOJ needs to keep the easy policy for an extended period to achieve the 2% price
target.
     "We will conduct monetary policy by taking account of developments of
financial conditions," he said without elaborating.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com