TOKYO- Bank of Japan (BOJ) Governor Haruhiko Kuroda said on Thursday any future debate on an exit from ultra-loose monetary policy will center on the pace of increase in short-term interest rates and adjustments in the bank’s massive balance sheet.
Kuroda brushed aside the chance of a near-term interest rate hike, stressing that the BOJ must continue to underpin a fragile economic recovery with loose monetary policy.
But he said the BOJ can debate an exit strategy from its massive stimulus and head toward policy normalization when achievement of its 2 percent inflation target, accompanied by wage increases, comes into sight.
“It’s premature to lay out details of an exit strategy. But one major factor of debate will be the pace of increase in the BOJ’s short-term policy rate, now set at -0.1 percent,” Kuroda told parliament.
“Another factor would be how to adjust its balance sheet,” he said, adding that most major central banks were moving ahead with rate hikes, before shifting toward a full-blow decrease in their balance sheets.
Kuroda said wages are likely to increase ahead as companies respond to intensifying labor shortages and recent rises in living costs, though the outlook remained highly uncertain.
“It’s extremely important for the BOJ to underpin the economy with ultra-loose monetary policy and ensure the necessary environment is falling into place for companies to hike wages,” Kuroda said.
Under its yield curve control (YCC) policy, the BOJ guides short-term rates at -0.1 percent and caps the 10-year bond yield around zero as part of efforts to sustainably achieve its 2 percent inflation target.
Kuroda said on Thursday he had no desire to get re-appointed for another five-year term to head the central bank, after his current one ends in April next year.
“In April, it will be 10 years since I became governor. Personally, I have absolutely no desire to get re-appointed,” Kuroda told parliament.
The government nominates a candidate for BOJ governor, which needs parliament approval to take effect. Prime Minister Fumio Kishida has offered few clues on who his preferred candidate could be, or when he could make the decision.
The choice of next BOJ governor will be crucial to how quickly the central bank could phase out the current radical stimulus program deployed by Kuroda.
While there is no law prohibiting Kuroda from seeking a third five-year term, few had expected him to be reappointed when his current term ends.
Given the deep expertise needed to navigate monetary policy at a time of huge economic uncertainty, former BOJ deputy governor Hiroshi Nakaso and incumbent deputy Masayoshi Amamiya are considered strong candidates to replace Kuroda. – Reuters
