Kuroda remark rekindles caution over BOJ stimulus exit

March 3, 2018

Tokyo- A remark by Bank of Japan Governor Haruhiko Kuroda surprised financial market players on Friday, rekindling jitters over when the central bank will start normalizing its monetary easing.

"Without doubt we would be considering an exit" from its unconventional monetary policy if Japanese inflation reaches 2 percent around fiscal 2019 as projected by the BOJ, Kuroda told a confirmation hearing at parliament.

The government has nominated Kuroda for another five-year term as BOJ chief.

As soon as the comment was reported, the dollar fell below 105.80 yen in Tokyo trading in the afternoon, while long-term interest rates hit a three-week high. Later in London, the dollar slid below 105.50 yen to the lowest level since November 2016.

"Players took Kuroda's words out of context amid caution over a BOJ exit strategy," a Japanese securities firm official said.

"Those who had hoped to buy the yen, mainly overseas players, took a cue from the Kuroda comment," Akira Moroga, a senior market products official at Aozora Bank said.

The comment reached the market when some participants were speculating that the BOJ may follow the US and European central banks and start monetary policy normalization.

On his overall policy position, many analysts observed that Kuroda reiterated his determination to continue the current monetary easing measures with patience.

During the hearing, Kuroda referred to adverse effects on financial institutions from prolonged monetary easing. This seems to show that Kuroda recognizes the need to pave the way for such an exit over the next five years, said Takehiro Noguchi, senior economist at the Mizuho Research Institute. Jiji Press