The new governor of the Bank of Japan said the central bank is ready to use all means available, including buying longer-term assets, to achieve its 2 percent inflation target, underlining his resolve to beat nearly two decades of grinding deflation.
In his inaugural press briefing, Haruhiko Kuroda said bold action was needed to meet the inflation target in two years, supporting expectations the central bank will expand stimulus at its next regular policy-setting meeting scheduled for April 3-4.
Financial markets have speculated that Kuroda might even call an emergency meeting before April 3-4 to push through stimulus, after he had said during confirmation hearings that he would act with speed. But he gave few clues away on that score before a packed news conference.
"The BOJ has held emergency meetings in the past, so it's not impossible, but I shouldn't comment on whether there will be an emergency meeting," he said on Thursday.
The former top currency diplomat and his two deputies, former academic Kikuo Iwata and career central banker Hiroshi Nakaso, joined the BOJ on Wednesday with a mandate by Prime Minister Shinzo Abe to pursue bolder, unorthodox policies to finally stamp out the deflation that the central bank has struggled to tame for years.
Analysts said the officials provided no surprises in their comments, largely repeating prescriptions they had offered during parliamentary confirmation hearings this month.
Still, Abe's relentless pursuit of what he has described as "regime change" in economic policy means market anticipation of bold BOJ measures is high. Tokyo's Nikkei share average has soared to a 4-1/2 year high and 10-year bond yields dropped to a near-decade low on Thursday. The yen, which edged down after Kuroda's comments, fell last week to its weakest level in more than three years.
"Certainly monetary policy going forward will have to be a lot more aggressive, ways that it could be done are bringing forward the open-ended asset purchase programme from 2014 with a wider range of assets," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi in London.
All Options on Table
Kuroda said the central bank is open to various options in easing policy, including switching to open-ended asset buying sooner than the scheduled 2014 and boosting purchases of longer-dated bonds. Still, he qualified those comments by saying he would like to carefully discuss these options with the nine-member board.
He stressed that with interest rates virtually at zero, the BOJ must try to affect market and public expectations of future price moves by expanding its balance sheet aggressively.
But he said pumping money into the economy alone isn't enough, suggesting that he is ruling out reverting to the quantitative easing of a decade ago when the BOJ targeted excess reserves parked with the central bank and flooded markets with cash mostly through purchases of short-term securities.
"Quantitative easing alone may have some spill-over effects on asset price moves ... But it's important to try and push down yields across the curve with purchases of longer-term financial assets," Kuroda said.
"I'm not saying achieving 2 percent inflation is easy. There will be challenges, but we must and can achieve it. We will take all means available until the target is met," he said.
The remarks underscore market expectations that Kuroda favours the BOJ extending the maturity of government bonds it targets beyond the current three years.
Critics doubt Kuroda's prescription will work given Japan's economy has been mired in nearly two decades of grinding deflation despite aggressive money printing by the central bank. But he will remain under pressure by Abe to deliver on his pledges and joins a board that had already been debating new ideas to reflate the economy, such as targeting longer-dated government bonds and boosting purchases of riskier assets.
"The BOJ will streamline its bond purchases under Kuroda. This would allow the BOJ to buy everything across the yield curve," said Masayuki Kichikawa, chief economist at Bank of America Merrill Lynch in Tokyo.
"This will change price expectations. I'm in the optimistic camp. I'm not so sure that we can reach 2 percent inflation in two years, but we could have mild inflation by the end of next year."