Kuroda stays at arms at final BoJ meeting after ‘bazooka’ decade

The Bank of Japan maintained the key pillars of its ultra-loose monetary policy as Governor Haruhiko Kuroda nears the end of a decade, leaving it to his successor to orchestrate an exit from negative interest rates and reach the bank’s elusive inflation target.

Kuroda, who has been linked to “bazooka” policies when he tried to boost prices in a sluggish economy, avoided further surprises at a final policy committee meeting before stepping down next month.

The BoJ left overnight interest rates at minus 0.1 percent. It maintained its bond-buying policy to control yields, letting 10-year bond yields fluctuate 0.5 percentage points either side of zero after surprising investors by widening the range in December.

The yen fell against the dollar from around 135.90 yen to 136.71 yen in the minutes after the BoJ’s decision, while the 10-year Japanese government bond yield fell to its lowest level in six weeks.

Economist Kazuo Ueda will succeed Kuroda as the first academic to head the central bank on April 9 after parliament confirmed his appointment on Friday.

With prices rising at their fastest pace in four decades, the 71-year-old faces the tricky task of guiding a gradual shift towards normalizing interest rates after two decades of Japan’s quantitative easing experimentation.

In comments during parliamentary hearings, Ueda, a former BoJ board member from 1998 to 2005, seemed in no hurry to change Japan’s negative interest rates. But he has signaled that the BoJ’s policy of capping the cost of long-dated government borrowing through large-scale asset purchases — known as yield curve control — is unlikely to survive in its current form.

Japan’s main consumer price index has beaten the BoJ’s target for nine straight months, rising 4.2 percent in January. While Ueda says inflation is likely to have peaked as government subsidies for electricity and gas take effect, uncertainty about Japan’s price outlook lingers.

“If you look at the wage increases and the increasing impact of rising costs, they are larger and lasting longer than expected,” said Tetsuya Inoue, a former BoJ official who served as Ueda’s secretary and is now a senior researcher at the Nomura Research Institute. “If enough economic data [on rising prices] collected, Mr Ueda will likely consider normalizing policy.”

Traders in Tokyo said there seemed to be little momentum behind the yen’s move and said the currency would stabilize at those levels while the market went back to figuring out what Ueda was likely to do in his first few months in office .

Benjamin Shatil, a FX strategist at JPMorgan in Tokyo, said foreign investors’ positioning in FX and interest rate markets was relatively low ahead of Friday’s BoJ meeting after the bank’s January failure and stalled some investors.

“That the yen weakened only slightly [on Friday after the BOJ announcement] speaks to a relatively clean background and thus a lack of positions that had to be resolved,” said Shatil.

Kuroda’s exit was “a clean pass for Ueda, who now has to do the heavy lifting,” he said.

Shusuke Yamada, chief foreign exchange and rates strategist for Japan at Bank of America, said the dollar still has room to rise against the yen. Japan’s balance of payments remains in deficit and Japanese demand for foreign debt is increasing, he said.

https://www.ft.com/content/72fd0545-180a-4566-9adf-0aeec49aa57d Kuroda stays at arms at final BoJ meeting after ‘bazooka’ decade

Brian Ashcraft

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