Departing Bank of Japan governor Haruhiko Kuroda has declared his ultra-loose monetary policy “a success” as he neared the end of a decade in charge, leaving his successor with the task of exiting from negative interest rates and meeting the bank’s elusive inflation target.
Kuroda, who became associated with “bazooka” policies in trying to boost prices in a stagnant economy, avoided further surprises in a final policy board meeting before he steps down next month.
The BoJ on Friday kept overnight interest rates on hold at minus 0.1 per cent. It maintained its bond-buying policy to control yields, allowing 10-year bond yields to fluctuate by 0.5 percentage points on either side of zero, after surprising investors by expanding the band in December.
“It is disappointing that we were not able to sustainably hit the 2 per cent [inflation] target,” Kuroda said after chairing his final policy board meeting.
“But in terms of bringing out the potential of the Japanese economy, I do think our monetary easing policy was a success,” he added, citing jobs growth and the end of deflation.
The yen fell against the dollar in the minutes that followed the BoJ’s decision, dropping from around ¥135.90 to ¥136.71, while Japan’s 10-year government bond yield fell to its lowest level in six weeks.
Economist Kazuo Ueda will take over from Kuroda on April 9 as the first academic to lead the central bank, after the parliament confirmed his appointment on Friday.
With prices rising at the fastest pace in four decades, the 71-year-old faces the delicate task of navigating a gradual shift towards interest rate normalisation after two decades of Japan’s experiment with quantitative easing measures.
In comments during parliamentary hearings, Ueda, a former BoJ board member from 1998 to 2005, appeared in no rush to change Japan’s negative interest rates. But he has signalled that the BoJ’s policy of capping long-term government borrowing costs through vast bond purchases — known as yield curve control — was unlikely to survive in its existing form.
Describing Ueda as “one of Japan’s leading economists” with inside knowledge of BoJ’s monetary policy, Kuroda said: “I hope that he will demonstrate his skills in carrying out the BoJ’s mission to stabilise prices and the financial system.”
Japan’s core consumer price index has surpassed the BoJ’s target for nine straight months, rising at a rate of 4.2 per cent in January. While Ueda says inflation is likely to have peaked, as government subsidies for electricity and gas kick in, there remains uncertainty over Japan’s price outlook.
“If you look at the wage rises and the widening impact of rising costs, they’re bigger and lasting longer than expected,” said Tetsuya Inoue, a former BoJ official who worked as Ueda’s secretary and is now a senior researcher at Nomura Research Institute. “If enough economic data [on rising prices] is collected, Mr Ueda will likely consider policy normalisation.”
Traders in Tokyo said there appeared to be little momentum behind the yen’s move and said the currency would stabilise at that level while the market went back to working out what Ueda was likely to do in his first months in office.
Benjamin Shatil, a foreign exchange strategist at JPMorgan in Tokyo, said foreign investor positioning in currency and interest rate markets was relatively light ahead of Friday’s BoJ meeting after the bank failed to move in January, catching out some investors.
“That the yen weakened only modestly [on Friday after the BoJ announcement] speaks to a relatively clean backdrop and thus lack of positions that had to be unwound,” said Shatil.
Kuroda’s outgoing move was “a clean pass to Ueda, who will now have to do the heavy lifting”, he said.
Shusuke Yamada, chief Japan foreign exchange and rates strategist at Bank of America, said the dollar still had scope to rise against the yen. Japan’s balance of payments remained in deficit and Japanese demand for foreign bonds was rising, he said.