BOJ to Consider Normalization During Next 5 Years, Kuroda Says

(Bloomberg) -- The Bank of Japan has a lot of work to do during the next five years, and that includes considering how to normalize monetary policy, according to Governor Haruhiko Kuroda.

“We will make the best efforts to meet the price-stability target, and eventually we will also have to consider the process of policy normalization,” the 73-year-old said in Tokyo after being officially reappointed. “I’ve been approved for another five-year term, and I plan to serve out that term.”

His comments showed a clear contrast from the start of his first term in 2013, when Kuroda emphasized the BOJ was aiming to hit the 2 percent inflation target in about two years. That timetable has come and gone, inflation is only halfway to that level, and many of the questions he faced at the press conference on Monday were about how and when the bank will start to slow or end its massive monetary stimulus.

Kuroda recently said the board would be debating and considering how to exit from its stimulus program in the fiscal year starting next April, as that’s when the board members currently forecast that inflation will approach the target. However, that forecast has been delayed numerous times over the past five years, and a majority of economists surveyed by Bloomberg don’t see prices accelerating to reach it.

Kuroda didn’t repeat that forecast on Monday, nor did he make any promise that prices would hit 2 percent during this new term.

While the BOJ’s easing helped weaken the yen, boosted corporate profits and stock prices, and assisted Japan’s longest period of growth in nearly three decades, the central bank’s policy is seen as unsustainable by some, as the bank’s balance sheet is approaching the size of Japan’s annual gross domestic product.

“An exit strategy is the highest priority” for Kuroda’s new term, according to a report from Hideo Kumano, chief economist at Dai-ichi Life Research Institute and a former BOJ official. “Within five years, many in financial markets think the BOJ will start on an exit strategy” because of the side effects of current policy.

Those side effects aren’t a big issue for the economy at the moment, Kuroda said, adding that the super low interest rates the BOJ has created aren’t hurting banks’ ability to function.

As he has done since 2013, Kuroda promised to continue the current policy until the inflation target has been reached, and he repeatedly said that it’s too early to give any details about what the bank’s considering for exit, as talking about it prematurely will only confuse markets.

©2018 Bloomberg L.P.