Exit strategy to be biggest challenge for Kuroda

February 11, 2018

Tokyo- Achieving 2 percent inflation and paving the way for exiting from the current massive monetary easing policy are likely to be the biggest challenge for Bank of Japan Governor Haruhiko Kuroda, who is expected to be reappointed by the government to a second five-year term.

It is not easy to normalize monetary policy at a time when financial markets are in turmoil globally, sources familiar with the situation said.

"I don't think at all that the BOJ needs to change its 2 percent inflation target," Kuroda said at a press conference last month.

Soon after taking office in March 2013, Kuroda, 73, introduced the quantitative and qualitative monetary easing.

Initially, he vowed to achieve 2 percent inflation in two years. But he has since pushed back the timing for achieving the inflation target six times, and he now expects to meet the goal around fiscal 2019, which starts in April next year.

Some economic policy advisers to Prime Minister Shinzo Abe called on him to replace Kuroda for failing to achieve the inflation target, the sources said. But Abe has consistently said that he trusts Kuroda's ability to steer monetary policy.

The BOJ is expected to maintain its current massive monetary easing for the time being as Abe plans to reappoint Kuroda, whose current term is set to expire on April 8, the sources said.

But concerns about adverse effects from the monetary easing are growing even within the BOJ, as banks and institutional investors are struggling with years of low interest rates.

Further wage growth is indispensable for realizing 2 percent inflation, a key condition for the BOJ to normalize its monetary policy.

But the Japanese economy is now facing headwinds, including a dive in stock prices and the yen's appreciation.

"Moves toward wage increases will be blocked if concerns about the economy's outlook grow ahead of annual 'shunto' spring labor-management talks," a senior BOJ official said.

The government is expected to file for parliamentary approval as early as this month of its plan to reappoint Kuroda as BOJ governor, informed sources said. Jiji Press