By Leika Kihara
TOKYO (Reuters) – Bank of Japan (BOJ) Governor Haruhiko Kuroda on Monday dismissed the possibility of a near-term exit from ultra-loose monetary policy, even as markets and policymakers are signaling growing focus on what’s to come. after the end of Kuroda’s term.
Investors continued to push Japanese government bond (JGB) yields higher in anticipation that the BOJ will phase out its grip on yields under a new governor when Kuroda’s second five-year term ends in April next year.
The shift in focus to a post-Kuroda era was also evident in Prime Minister Fumio Kishida’s comments on Monday that a decision on revising Japan’s 10-year plan to beat deflation will be made after a new BOJ governor is appointed. .
“It’s something for after the decision of the new BOJ governor,” Kishida said at a seminar, referring to possible changes the government may seek in its joint statement with the BOJ committing the central bank to an inflation target of 2 % as soon as possible. possible.
The BOJ shocked markets last week with a surprise widening of the allowance range around its 10-year JGB target, a move that was aimed at easing some of the cost of sustained stimulus.
Kuroda said on Monday that last week’s decision was meant to enhance the effect of his ultra-easy policy, rather than a first step towards withdrawing his massive stimulus program.
“This is definitely not an exit step. The Bank will aim to achieve its price target in a sustainable and stable manner, accompanied by wage increases, continuing with monetary easing under yield curve control,” he said Kuroda in a speech given at the Keidanren business lobby.
But Kuroda said wage growth would likely pick up gradually due to intensifying labor shortages and structural changes in Japan’s labor market, which are leading to higher pay for temporary workers and an increase in the number of workers. indefinitely.
“Japan’s labor market conditions are expected to tighten further and the behavior of firms in setting prices and wages will also change,” Kuroda said.
“In this sense, Japan is approaching a critical moment to emerge from a protracted period of low inflation and low growth,” he said.
The strength of wage growth is seen as key to how soon the BOJ could lift its yield curve control (YCC) targets, which are set at -0.1% for short-term interest rates and around 0% for the 10-year bond yield.
The BOJ’s relentless bond-buying to defend the yield cap has sparked mounting public criticism for distorting market prices and causing an unwelcome fall in the yen that has pushed up the cost of importing of already expensive raw materials.
Sources told Reuters that Kishida’s administration will consider next year’s revision of the joint statement which focuses on steps to defeat deflation, a goal that is no longer synchronized with recent increases in inflation and has prevented the BOJ to adjust monetary policy more flexibly.
Analysts say any such revision would raise the possibility of a change to the BOJ’s ultra-low interest rates.
The yield on the two-year JGB edged up briefly to 0.225% on Monday, the highest since 2015, on expectations of a near-term rate hike. The yield on the 10-year JGB also rose to 0.445%, near the 0.5% upper limit of the new band.
Kishida offered few clues about his choice as the next BOJ governor, saying only that the new appointee would be someone “deemed most appropriate” at the time.
(Reporting by Leika Kihara; Additional reporting by Tetsushi Kajimoto and Kentaro Sugiyama; Editing by Edmund Klamann)