The Bank of Japan would be willing to add to already unprecedented levels of monetary stimulus “without hesitation”, according to the bank’s governor Haruhiko Kuroda.
In an interview with the Wall Street Journal last weekend in New York, Kuroda did nothing to hose down speculation that additional stimulus will be delivered when the bank meets to discuss policy in less than two week’s time, stipulating that “without hesitation we would adopt additional monetary easing by way of quantity, quality and interest rate, individually or collectively”.
In light of the recent rally in the Japanese yen, something that has seen the currency appreciate 10.4% against the US dollar since the BOJ last eased policy on January 29, Kuroda also warned that persistent strength in the yen could undermine the bank’s attempt to bring Japan’s inflation rate back to 2% by early 2017.
“If excessive appreciation continues, that could affect not just actual inflation, but even the trend in inflation through its impact on business confidence, business activity, and even through inflation expectations,” Kuroda told the Journal.
“Although our monetary policy is not targeted to the exchange rate, we continue to carefully monitor exchange-rate movements. And as I always emphasize, if necessary to achieve 2% inflation target at the earliest possible time, we would not hesitate to take further easing measures.”
Despite the prospect of further easing being delivered — something that began just days after the BOJ surprised markets by adopting a negative interest rate policy in late January — Kuroda stipulated that there was one monetary policy approach that he would not be willing to consider no matter the circumstances — giving money directly to households, otherwise known as “helicopter money”.
“We have no intention to employ helicopter money, anything like that,” Kuroda said, suggesting that it would blur the division between fiscal and monetary policy.
He also stated that he didn’t want to jeopardise the central bank’s independence, something that many market participants have already questioned given the great swathes of Japanese government bonds the central bank has purchased as part of its quantitative and qualitative easing (QQE) program.
Since October 2014, the bank has pledged to expand the nation’s monetary base at an annual pace of about 80 trillion yen (US$700 billion) through the purchase of Japanese government bonds (JGBs), exchange traded funds (ETFs), Japan real estate investment trusts (J-REITs) and corporate debt issued by Japanese firms.
As a result of QQE, the BOJ is now purchasing almost all new JGBs issued by the government’s Ministry of Finance, as demonstrated in the chart below supplied by Citibank.
In absolute terms, the bank currently owns 292 trillion yen ($US2.56 trillion), or 34%, of all Japanese government debt, with the figure expected to grow to nearly 50% by the end of 2017.
Although the aim of asset purchases is to lower interest rates for the private sector and push investors further out the risk spectrum, it could easily be argued that it is also acting as a conduit to finance the government’s mounting fiscal deficit.
The Bank of Japan’s two-day monetary policy meeting will begin on April 27, with the decision scheduled to arrive early afternoon in Tokyo on April 28.
You can read more from the Journal here.