BOJ's Miyao: chance high that QE exit debate can begin in second half of FY 2015

[TOKYO] Bank of Japan board member Ryuzo Miyao said on Wednesday there is a high chance that the central bank can begin debating an exit to its quantitative easing in the second half of fiscal 2015, the most specific comments to date about when that debate will start.

Miyao did not elaborate on how or when he thought the central bank would actually start to wind down its purchases of government debt and risk assets, but cited the Federal Reserve's slowing of its asset purchases as one example of how it might proceed.

Miyao played down the risk that the BOJ's expanded easing had made it more difficult to exit and that it would cause asset bubbles, but there is lingering speculation that the BOJ will have to ease again if inflation fails to pick up. "I think there is a high chance the BOJ can begin specific debate on its exit strategy in the second half of fiscal 2015, which is when we see a high chance of meeting our price target,"Miyao told business leaders in Nagasaki, in southern Japan.

Miyao was among four board members who supported BOJ Governor Haruhiko Kuroda's proposal to expand monetary stimulus at an Oct 31 policy meeting, in response to slowing inflation and weak growth.

The BOJ shocked global financial markets by increasing its annual government debt purchases by 30 trillion yen (US$260 billion), to 80 trillion yen, in an admission that its goal of reaching 2 per cent inflation around fiscal 2015, which ends in March 2016, was under threat.

Miyao acknowledged that some economists thought the extra easing would make it more difficult to unwind its debt purchases, but he roundly dismissed those claims.

The additional easing will make it more likely that inflation rises to 2 per cent in a balanced manner because corporate earnings, employment and wages will improve, he said.

Falling energy prices will stop putting downward pressure on prices after the summer of next year, which will also contribute to inflation, he said.

The risk of an asset bubble is contained, he said, because measures are being taken to improve competitiveness. If asset prices rise in line with economic fundamentals, this will limit any distortions caused by monetary policy, he said.

REUTERS