Kuroda defends the BOJ’s ultra-dovish stance at his last policy meeting

Japan’s outgoing central governor Haruhiko Kuroda defended the Bank of Japan’s ultra-dovish monetary policy stance at his final policy meeting on Friday.

The Bank of Japan left its negative interest rate unchanged at -0.1%, broadly in line with expectations – and reiterated the central bank’s aim to keep the yield on the 10-year Japanese government bond (JGB) around 0%.

The central bank has kept its benchmark interest rate unchanged since 2016, when it implemented its yield curve control (YCC) policy, which seeks to defend its target on JGBs by buying an unlimited amount of government bonds.

Kuroda was first appointed in March 2013. His current five-year term ends on April 8 and is set to be replaced by incoming BOJ chief Kazuo Ueda.

Kuroda has led the central bank’s ultra-dovish monetary policy for the past decade – even as global central banks have raised interest rates in recent months in an effort to tame inflation.

The BOJ shocked global markets in December when it widened its tolerance range to 50 basis points above and below its 0% target – up from a previous 25 basis points.

On Friday, the yield on 10-year Japanese government bonds fell to 0.441%, below the upper ceiling of the central bank’s tolerance range of 50 basis points above and below 0%. The Japanese yen weakened about 0.3% after the announcement, trading at 136.6 against the US dollar.

“Japan’s economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed,” the Bank of Japan said in its policy statement on Friday, which ended the two -day meeting.

“Financial conditions have generally been accomodating, although weakness in corporate financial positions has persisted in some segments,” the central bank said.

Japan’s upper house of parliament approved Ueda as the next central bank chief, Kyodo reported. This sets the stage for the Japanese government to formally appoint Ueda following approval by the lower house on Thursday.

The parliament also approved Shinichi Uchida and Ryozo Himino as the next deputy governors of the Bank of Japan, Kyodo said.

The central bank held off on changes to its yield curve control policy and inflation target, saying it will aim “to reach the price stability target of 2 percent for as long as necessary to maintain this target in a stable manner.”

The Bank of Japan “will continue to expand the monetary base until the year-on-year rate of increase in the observed CPI (all goods minus fresh food) exceeds 2 percent and remains above target in a stable manner,” it said in a statement.

Japan’s consumer price index rose 4.2% in January – the highest CPI reading in 41 years. The next report will be published on 24 February.

However, the central bank ended its statement on an upbeat note, saying further growth lay ahead for the country’s economy.

“Japan’s economy is likely to recover, with the impact of COVID-19 and supply-side constraints easing, although it is expected to be under downward pressure from high commodity prices and slowdowns in overseas economies,” the central bank said.

“Japan’s economy is expected to continue growing at a pace above its potential growth rate,” it said.