Kuroda highlights need to look at the downside of easy policy

Osaka

BANK of Japan (BOJ) governor Haruhiko Kuroda said on Tuesday the central bank has entered a phase where it must consider not just the merits but the side-effects of its massive stimulus programme in a "balanced manner".

He also said the BOJ's new commitment to keep interest rates very low for an "extended period" did not mean near-zero rates will be maintained permanently, reminding markets that the central bank could raise rates if the inflation rate picks up.

The remarks underscore growing concerns within the BOJ over the rising cost and diminishing returns of its radical stimulus programme, which has eroded commercial banks' profits via ultra-low rates and failed to fire up inflation to its elusive 2 per cent target.

In the minutes of the BOJ's July meeting, released earlier on Tuesday, a few policymakers warned that the central bank must consider more seriously the potential dangers of ultra-easy policy, such as the negative impact on the country's banking system.

Mr Kuroda said while wages and prices are turning up, reflecting a strengthening economic recovery, achievement of his 2 per cent target was taking more time than expected.

"Under such a fairly complex economic and price situation, monetary policy must take into account various developments in a comprehensive manner," Mr Kuroda said in a speech to business leaders in Osaka. "This means that, in continuing with powerful monetary easing, we now need to consider both its positive effects and side-effects in a balanced manner."

Mr Kuroda also said there was no change to the BOJ's stance of seeking "stable prices" that contributed to the sound development of the economy.

"The BOJ will continue to make its utmost efforts to firmly support corporate activity, taking into account economic, price and financial developments," he said.

The remarks, which made no explicit mention of the price target, were in contrast to those made until earlier this year, in which Mr Kuroda repeatedly said the BOJ would strive to achieve 2 per cent inflation.

Mindful of the rising cost of prolonged easing, the BOJ took steps in July to make its policy framework more sustainable, such as by allowing bond yields to move more flexibly around its zero per cent target. REUTERS