BOJ keeps policy steady, board newcomer signals desire for easing

The Bank of Japan kept policy settings steady on Tuesday but a board newcomer called for clearer commitment to ramp up stimulus if necessary, potentially complicating future efforts by the central bank to dial back its massive monetary support.

With inflation still distant from his 2 percent target, BOJ Governor Haruhiko Kuroda stressed that he saw no immediate need to exit its ultra-easy policy even as other major central banks have started to unwind their crisis-era monetary programs. 

Acknowledging the rising costs and diminishing returns of his stimulus program, however, Kuroda signaled the chance of slowing the BOJ’s exchange-traded fund (ETF) buying before embarking on a full-fledged withdrawal of stimulus. 

“When adjustments to our framework become necessary, they don’t need to involve everything in the BOJ’s framework. Our (ETF) purchases focus on affecting risk premium, so we will take that into account in making a decision,” Kuroda told a briefing. 

The remarks came after the BOJ’s widely expected decision to maintain a pledge to guide short-term interest rates at minus 0.1 percent and 10-year bond yields around zero percent. 

Newcomer Goushi Kataoka voted against keeping policy steady for the second straight meeting, arguing that the BOJ should make clear its readiness to expand stimulus again if domestic factors delay achievement of its price target.

While not an official proposal for easing, the former private economist also said the BOJ should buy government bonds so 15-year yields “remain at less than 0.2 percent”. The 15-year government bond yield stood around 0.307 percent on Tuesday. 

The dissent by Kataoka could complicate the BOJ’s efforts to follow in the footsteps of its U.S. and European counterparts in withdrawing stimulus, analysts say.