Bank of Japan Governor Haruhiko Kuroda stressed the need to look at the impact monetary policy has on the banking system and said changes in the economy could trigger a hike in the bank’s yield targets.
He said that while it was premature to debate specifics now, the BOJ’s future communication would focus on how to exit from quantitative easing without disrupting financial markets, reports Reuters.
“At present, we consider the current shape of the yield curve as appropriate,” though this could change depending on how the economy and prices perform, as well as how the BOJ’s easy policy affects Japan’s banking system.
Under a policy framework adopted last year, the BOJ now guides short-term interest rates at minus 0.1 per cent and the 10-year government bond yield around zero per cent.
Kuroda said the BOJ was “very mindful” of the impact its ultra-easy monetary policy was having on financial institutions’ profits via narrowing margins, particularly on regional banks suffering from a lack of fund demand and a dwindling population.
“Both financial and price stability are important policy mandates for the BOJ,” Kuroda said, in a departure from his usual stance of putting more emphasis on achieving the BOJ’s price target than on the impact its policy is having on the banking system.
Kuroda repeated it was too early to debate which steps, and in what order, the BOJ should take when withdrawing stimulus, saying communicating the strategy now would cause market confusion.
But he said the BOJ has the necessary tools and means to achieve a smooth exit from quantitative easing.