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Kuroda urges vigilance on spillovers of diverging Fed, ECB, BOJ policies
[TOKYO] Bank of Japan Governor Haruhiko Kuroda on Thursday urged policymakers to heed the global spillover effects of diverging monetary policies among Japan, the United States and the euro-zone - particularly on emerging economies.
He noted last year's sharp oil price falls challenged central banks and raised the importance of more accurately measuring inflation expectations, a key channel for unconventional monetary policy to work. "In emerging economies, monetary authorities have paid more attention to developments in foreign exchange rates and international capital flows" that are affected by the policy actions of major central banks, Mr Kuroda said in a speech to a BOJ-hosted seminar on central banking. "In addressing these international spillovers, how to use monetary policy, macro-prudential policy, and capital flow management policy in combination has come to be a crucial issue, particularly for countries that have financial system vulnerability," he said.
Investors have pushed up the dollar as the Federal Reserve eyes an interest rate hike, even as the BOJ and the European Central Bank maintain their ultra-loose monetary policies.
Some emerging economies worry that the Fed's proposed rate hikes, which are seen kicking off later this year, may complicate the their policy management by triggering a massive outflow of capital from their markets back to the United States.
Mr Kuroda said advanced central banks faced policy challenges of their own as last year's oil price slump slowed headline inflation and threatened to hurt public expectations that prices will rise in the future.
The BOJ expanded its massive stimulus last October to prevent the oil rout, and a subsequent slowdown in inflation, from delaying a sustained halt on deflation.
Inflation expectations are "obviously" one of the most important channels in which unconventional monetary policy, such as quantitative easing, reflates growth, Mr Kuroda said. "It is a major policy concern for central bankers to gain a better understanding of how to measure inflation expectations, how such expectations actually affect firms' price- and wage-setting behavior, as well as households' consumption decisions, and how to evaluate the degree to which inflation expectations are anchored," he said.