Nov 26, 2014

    BOJ ready to expand stimulus: Kuroda


    BANK of Japan (BOJ) governor Haruhiko Kuroda yesterday stressed the bank's readiness to further expand stimulus to meet its price goal, a message that was partially echoed by a European Central Bank (ECB) policymaker as the euro zone economy battles to lift off.

    In a speech to business leaders, Mr Kuroda stood firm in the face of criticism that last month's unexpected monetary easing has accelerated unwelcome falls in the currency, saying that the "BOJ will continue to take action" to vanquish deflation.

    But not all on the BOJ's nine-member board share Mr Kuroda's optimism that the benefits of further stimulus outweigh the costs, minutes of last month's meeting showed, suggesting that the central bank chief may struggle to push through more easing.

    Some BOJ policymakers opposed last month's easing, warning that doing so would hurt the BOJ's credibility if its bond-buying is seen as tantamount to debt monetisation, according to minutes of the BOJ's Oct 31 meeting, released yesterday.

    Nonetheless, Mr Kuroda defended the Oct 31 easing as a necessary step to ensure the Japanese public shakes off its "deflationary mindset", and to encourage companies to start investing and hiring more on expectations that prices will rise. "To achieve the price stability target, the BOJ has been taking 'actions' and will continue to do so," he told business leaders in Nagoya, a central Japan city home to car giant Toyota Motor Corp.

    While business executives present at the meeting generally welcomed the BOJ's stimulus, some warned that the recent yen declines were too rapid and were hurting smaller companies.

    Mr Kuroda declined to discuss how recent yen falls have affected the overall economy, saying only that while a weak yen benefits exports, it hurts households and non-manufacturers by raising the cost of imports. "We will carefully watch market moves, including currency moves, and their effect on the economy."

    The yen has come under renewed pressure since the BOJ stunned markets by expanding its quantitative and qualitative easing (QQE) programme last month.

    Last month's monetary easing was decided by a tight 5-4 vote, after intense debate over why the BOJ ought to expand stimulus when it was clinging to the view that the economy was recovering.

    Since that meeting, economic data showed that Japan slipped into recession, and three of the four board members who opposed extra easing voted in favour at the subsequent meeting on last Tuesday and Wednesday.

    The BOJ has made some progress in pulling Japan out of 15 years of nagging deflation, but the euro zone is drifting closer to deflation. ECB policymaker Christian Noyer said in Tokyo that the ECB needs to influence inflation expectations, which is a major component of the BOJ's policy framework.

    However, one area where the two central banks differ is that the ECB has so far avoided the purchases of government debt that the BOJ has used to push down yields.