BOJ Iwata keeps focus on money printing, exposes rift in board

[NAGASAKI] Bank of Japan Deputy Governor Kikuo Iwata said the central bank has not shifted its focus away from the pace of money printing, contradicting the governor's view and exposing a rift in the board on how best to break the country's deflation shackles.

BOJ Governor Haruhiko Kuroda has said the central bank may slow the pace of money printing if it can hit its interest rate targets, set under a policy revamp in September, with fewer asset purchases.

But Mr Iwata, who is among advocates of aggressive money printing in the nine-member board, shrugged off the view the BOJ was now putting less emphasis on pumping money, stressing the bank remained committed to using both rate cuts and asset purchases as key tools to revive the economy. "I would like to emphasise that the BOJ will continue expanding the monetary base in the future under its new policy framework," Mr Iwata told business leaders in Nagasaki, southern Japan, on Wednesday. "Some argue that the BOJ's policy focus has shifted from quantity (of asset purchases) to interest rates under the new policy framework. But such an understanding is inappropriate." The gap in view between Kuroda and Iwata, one of his two deputy governors, may complicate the BOJ's task of communicating its policy intentions to markets as it struggles to reflate growth with its dwindling policy options.

The BOJ shifted its policy target to interest rates from base money, or the pace of money printing, in September after three years of aggressive asset purchases failed to accelerate inflation to its 2 per cent target.

Under a new yield curve control (YCC) policy, the BOJ guides short-term interest rates to minus 0.1 per cent and the 10-year government bond yield around zero per cent.

The BOJ abandoned its base money target that was the core of its "quantitative and qualitative easing" (QQE) programme, put in place in 2013 to drive up inflation with huge asset buying.

The move was a setback for Mr Iwata, a former academic regarded as an architect of QQE. But the BOJ maintained a loose goal to keep buying bonds at the current pace, a compromise to advocates of heavy money printing in the board.

Mr Iwata, who voted for September's policy revamp, said the BOJ will likely maintain the current pace of bond buying for the time being, with any decline in purchases seen modest.

Japanese bond yields have been creeping up recently in response to gains in US Treasury yields on expectations that the new administration of president-elect Donald Trump will boost borrowing to ramp up infrastructure spending.

Mr Iwata said he saw no need for the BOJ to respond to recent Japanese yield rises, such as by accelerating bond purchases, as the move did not pose an immediate threat to the economy. "What's important is the speed of rises and the factors behind the (yield) move," he told a news conference, stressing the BOJ's readiness to expand stimulus if the economy loses momentum toward achieving 2 per cent inflation.

The BOJ pushed back the timeframe of hitting its ambitious inflation target in October, as weak consumption and falling import costs from a strong yen weigh on price growth.

REUTERS