TOKYO -- With inflation still distant from its target, the Bank of Japan maintained its promise to keep pouring stimulus into the economy, days after the US Federal Reserve raised interest rates and set out more details of its plan to normalise policy.
The BOJ will continue to manage the yield curve through a negative interest rate and buying trillions of yen worth of bonds, it said in a statement Friday. The result was expected by all 43 economists surveyed by Bloomberg.
Japan’s longest period of economic expansion in a decade has provided some support for the BOJ, which hasn’t changed policy since September last year, yet inflation remains stubbornly low. While the amount of bonds it buys is slowing, there is little expectation that it will substantially change course during the rest of Governor Haruhiko Kuroda’s current term. Calls are growing louder for him to at least map some details of how the BOJ may eventually exit stimulus.
“The BOJ doesn’t need to move now, thanks to the continuing recovery,” Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research & Consulting, said before the decision. “What we want to know now is how much Kuroda will speak about his exit plan as his massive easing is becoming a source of concerns. ”
Akio Negishi, the president of Japan’s life insurance association, said last week that the BOJ should talk openly now about how it might unwind its policies, even if it has to change its approach later. The life insurance industry is the third-biggest holder of government bonds, after the BOJ itself and commercial banks. Hiroshi Yoshikawa, a former adviser of finance minister, echoed that in urging the BOJ to talk about exit.
Not everyone thinks it is so urgent for the bank to start that discussion.
“It’s not strange that Kuroda isn’t talking about an exit plan when inflation’s around zero percent. It’s just too early,” said Daisuke Karakama, chief market economist at Mizuho Bank Ltd in Tokyo. “The problem is that some started to wonder if the BOJ is really thinking about exit at all. That’s something Kuroda would want to clarify.”
While Kuroda has said talk of any exit from monetary stimulus is premature and would end up confusing markets, the bank is re-calibrating its communications to acknowledge that it is thinking about how to handle an eventual exit, people familiar with the matter told Bloomberg this month. However, they do not want to give the impression that this is on the agenda anytime soon.
Kuroda was to brief the press at 3.30pm.
Key elements of the BOJ’s monetary stimulus policy, which were left unchanged Friday are:
A negative interest rate of minus 0.1% applied to some of the money financial institutions keep at the BOJ.
Purchases of government bonds, which aim to keep the 10-year bond yield at about 0%.
To increase its holdings of JGBs by about 80 trillion yen (US$720 billion) a year, although even Kuroda has acknowledged that it is only rising by about 60 trillion yen.
To buy ETFs so holdings rise by 6 trillion yen a year and to keep increasing its holdings of JREITs by 90 billion yen.
Holdings of commercial paper will continue to be about 2.2 trillion yen, while corporate bond holdings will stay at about 3.2 trillion yen.
Talk about exiting monetary easing is gaining momentum around the world. The Fed gave further details of its plan to normalise its balance sheet this year as it raised rates for a third time in six months earlier this week. The European Central Bank softened its easing bias at a meeting this month, reinforcing a view that it is moving toward the exit.
The wider debate about winding down stimulus in Japan does not indicate confidence that the central bank will reach its goal. Forty of 42 economists surveyed by Bloomberg said the 2% inflation target is unattainable within the BOJ’s projected time frame.
“The exit debate is intensifying out of concern over the potential impact on the BOJ’s balance sheet” in a nation which holds the world’s largest debt burden, said Maiko Noguchi, a senior economist at Daiwa Securities.
“It’s also because Kuroda’s term is ending within a year. He can’t just throw a party and leave,” she said, referring to the end of his current term next April.