Kuroda Hints at Policy Normalization as Prices, Economy Improve

(Bloomberg) -- Bank of Japan Governor Haruhiko Kuroda dropped a heavy hint Monday that he wants to normalize monetary policy once the BOJ gets closer to its price goal.

While the central bank still needs to stick persistently with its stimulus program to achieve its 2 percent inflation target, Japan is no longer in a situation where it's best to be "decisively implementing a large-scale policy to overcome deflation," Kuroda said in a speech in Nagoya.

He also showed his growing willingness to acknowledge the drawbacks of massive stimulus on commercial banks, reiterating that the BOJ is aware of the downward pressure on their profitability and the risks to financial stability in the event of a large negative shock.

The latest remarks may strengthen the view among investors and economists that the BOJ is laying the groundwork to pull back further from its stimulus as soon as it has confirmed that the impact of a sales-tax hike next year is not going to tip the economy toward recession.

Most economists surveyed by Bloomberg viewed the BOJ's policy adjustments in July, which were presented as a way to enhance the sustainability of Kuroda's program, as stealth tapering.

Kuroda later Monday stressed that powerful stimulus needs to continue to achieve the inflation target, while noting that he didn't expect the current monetary easing to continue for the next five years or longer.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Paul Jackson

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