BoJ Asset Purchase Pace to Continue

The Bank of Japan will continue with very accommodative monetary policy and maintain the current pace of asset purchases for some time, Governor Haruhiko Kuroda said in an interview.

While Japan’s economy is doing better than expected a few months ago, the inflation rate is still quite sluggish, Kuroda said in New York on Thursday, Bloomberg reported.

Speaking a week before the BoJ’s next policy meeting, when the board will also update its estimates for growth and consumer prices, he said the exchange rate could affect inflation in the short term and that if the yen appreciates, there is a chance of a delay in hitting his 2% price goal. He added that depreciation would have the opposite effect.

The yen extended its declines after Kuroda spoke. It traded at 109.26 to the dollar in Tokyo on Friday.

After four years of aggressive monetary stimulus, and with his term set to end in April 2018, Kuroda is still far from his goals while his Federal Reserve counterpart Janet Yellen is taking rates higher and policymakers at the European Central Bank are debating tapering. All three central banks have run up huge balance sheets since the financial crisis after buying bonds and other assets.

“It’s premature to discuss in an exact way about exit strategy,” Kuroda said. While the Fed’s strategy of keeping the balance sheet unchanged as it raises rates is one way to exit, “whether we would follow the Fed example or not depends on the situation when we decide exit strategy.”

Kuroda also faces a market that’s highly skeptical of his capacity to continue vacuuming up Japanese government bonds.

Some investors have criticized the BoJ for distorting normal market mechanisms while others have warned that it will run out of securities to buy.

“I don’t think our monetary policy is constrained by the fact that we have acquired 40% of Japanese Government Bonds already, or our balance sheet is about 80% of GDP, which is certainly large compared with other central banks,” Kuroda, 72, said. “We have acquired about 40% of JGBs outstanding. But that means that 60% is still in the market.”

While the yen has weakened considerably since Kuroda became BoJ governor, it has strengthened about 7% against the dollar this year, driven in part by global economic and geopolitical uncertainty.

Speaking later in Washington, where he is attending an International Monetary Fund meeting, Kuroda said the BoJ’s policy, and that of other central banks, is aimed at price stability, not exchange rates.