Japanese Governor Haruhiko Kuroda eliminated the chance of a short-term rise in interest rates and argued that it could only now raise financial institutions' tensions by threatening the revival of the country's economic recovery.
Governor of Bank of Japan (BOJ) Haruhiko Kuroda will attend a press conference at the BOJ headquarters in Tokyo, Japan, October 31, 2018. REUTERS / Issei Kato
While Kuroda stated that BOJ would take note of the rising cost of a prolonged impetus, he saw "no reason" that he now has to follow in the footsteps of his US counterpart in normalizing inflation policy that is still far from his 2 percent target.
Kuroda admitted that Japanese regional banks can see their business environment deteriorate for another five to ten years because they can sell to cope with shrinking profits from major credit operations.
But their situation had less to do with BOJ than structural problems such as shrinking populations and lack of funding demand, Kuroda said.
"While these increases in rates and the strengthening of the yield curve could worsen the economy and have a negative impact on financial institutions," Kuroda said on Monday after a meeting with Nagoya's corporate representatives in central Japan.
"The problems (regional banks) are structural, so the measures they take must also be structural," with mergers and integration between the steps they could take.
It follows from these observations that the central bank is currently deterred from raising rates and, if necessary, only improves its program to address the increasing cost of relief.
The rising cost of prolonged release has been the subject of a BOJ review in September, with one politician warning that there is a limit on how long this stimulus could be sustained, showed minutes on Monday.
"One member said that it is possible for the BOJ policy framework to be more flexible in the future" if the economy continues to expand, they have shown themselves in the record.
Kuroda said the key is that the BOJ stimulus program is best suited to keeping the economy without destabilizing the banking system.
"Unlike the past, Japan is no longer in a situation where robust and comprehensive policies are needed to overcome deflation," he said before the Nagoya business leaders, and refused the chance to deploy another enormous stimulus program, worsening.
"We must continue to pursue a strong monetary relief and a balanced view of the positive effects and side effects."
FLEXIBLE INFLATION TARGET?
Dampened inflation has prompted BOJ to maintain its radical stimulus program, even though low-interest years have damaged the profits of financial institutions and dried up the liquidity of the bond market.
In July, the central bank took steps to keep its policy more sustainable, for example, allowing bond yields to move more flexibly around its zero percent target. However, these measures have done little to alleviate the pain of financial institutions.
With the economy in good shape, some legislators have said that BOJ should not insist on achieving inflation by 2% and start thinking about ways to normalize politics.
At a meeting with Kuroda, Ado Yamamoto, head of Nagoya's business lobby, said that the central bank should start a strategy to end the crisis regime.
Kuroda now declined the chance to reveal a exit strategy, saying it could be counterproductive with inflation just half the level of the BOJ goal.
But he said he does not expect street politics to take years, adding that the central bank is constantly asking for a price target at all costs.
"It is true that there is some room for flexibility over the price target," said Kuroda.
"We are constantly striving to achieve a price goal."
Another report by Stanley White in Tokyo; Editing by Sam Holmes & Shri Navaratnam