Kuroda Vows to Stay Course After Speculation Over Tightening

(Bloomberg) -- Bank of Japan Governor Haruhiko Kuroda gave the clearest signal yet that his recent comments about the "reversal rate" theory weren't an indication of tighter monetary policy in the coming year.
 
The BOJ's yield-curve control program, partly intended to address the impact of monetary easing on Japanese banks, has been successful and hasn't created any problems for financial institutions such as those described in the reversal rate theory, Kuroda said Monday during a conference in Tokyo when asked about his comments last month.
 
“During my speech at the University of Zurich, I mentioned the reversal rate and other academic arguments, but as I said, our strategy already changed in September last year,” Kuroda said.

The BOJ needs to continue “extremely” accommodative monetary policy because inflation remains far from its 2 percent target, and will act immediately to undertake additional monetary easing if the current price momentum appears at risk, he said.
 
“I would like to emphasize that the current yield-curve control has been quite successful and we will continue the current framework in order to achieve the 2 percent price target,” he said.

Read more: Kuroda Quizzed Over Comments That Fueled Talk of BOJ Tightening

In parliament last week, Kuroda said the reversal rate is a useful theory for determining the most appropriate yield curve, but that Japanese banks had sufficient capital and their lending functions remained intact.

The reversal rate theory posits that excessively low rates may harm the profits of commercial banks and make them more reluctant to lend, contrary to the goals of monetary easing. Some investors and economists said Kuroda's comments were meant to signal a step toward policy normalization.

Morgan Stanley and JPMorgan Chase are among those forecasting BOJ tightening next year as Japan's economy registers its longest economic expansion in 16 years. 

Kuroda, who has criticized some past policy exits by the BOJ as premature, has committed the BOJ to overshooting its inflation target, promising to continue expanding the monetary base until inflation rises above 2 percent in a stable manner.

Japan's core consumer prices, which excludes fresh food, rose 0.8 percent in October, a government report showed last week.

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, Henry Hoenig

©2017 Bloomberg L.P.