Kuroda Sticks With BOJ Easing, Hits Yen Again at Last Meeting

The Bank of Japan maintained its easing stance, sending the yen weaker, as Governor Haruhiko Kuroda held his final meeting at the central bank after a decade of massive stimulus.
Haruhiko Kuroda, governor of the Bank of Japan (BOJ), speaks during a news conference in Tokyo, Japan, on Wednesday, Jan. 18, 2023.  Photographer: Koichiro Tezuka/The Mainichi Newspaper/Bloomberg
Haruhiko Kuroda, governor of the Bank of Japan (BOJ), speaks during a news conference in Tokyo, Japan, on Wednesday, Jan. 18, 2023. Photographer: Koichiro Tezuka/The Mainichi Newspaper/Bloomberg

The Bank of Japan maintained its easing stance, sending the yen and bond yields lower, as Governor Haruhiko Kuroda held his final meeting after a decade of massive stimulus.

The decision came shortly after parliament formally approved Kazuo Ueda to succeed Kuroda in April. Leading up to the meeting, multiple BOJ watchers had warned of the risk that Kuroda might adjust or scrap the central bank’s easing program to pave the way for a fresh start for Ueda, expectations that were dashed by the stand-pat decision. 

Ueda will face the challenge of how to manage a stimulus program showing signs of strain and how to pare it back without jolting markets should the central bank under his leadership judge that its inflation target has finally been achieved.

“All in all, the BOJ under Ueda will keep up monetary easing while paying attention to market functionality and they won’t go for a major change immediately,” said Nobuyasu Atago, chief economist at Ichiyoshi Securities and a former BOJ official.

At Friday’s meeting, the BOJ kept its policy settings for its negative interest rate and yield curve control program unchanged. The decision was in line with the view of almost all 49 economists surveyed by Bloomberg. 

The currency weakened as much as 0.6% before paring the drop to trade around 136.70 per dollar. The yield on 10-year government debt fell more than 11 basis points to 0.385%, compared with the BOJ’s yield cap of 0.50%.

Kuroda underscored his dovish stance at the end of his record-breaking run at the helm, in sharp contrast with the Federal Reserve, which could re-accelerate the pace of its rate hikes this month. The BOJ decision may temper the market view that side effects from yield curve control need to be addressed soon.

The central bank signaled its continued concern over the economy by downgrading its view on exports and production, though it left its overall economic assessment unchanged. Revised data on Thursday showed the economy only just missed falling into recession by a whisker at the end of last year, a result that showed more weakness than initially thought.

“It was difficult to imagine the BOJ making any major change at Kuroda’s very last meeting,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “If you look at the economy, gross domestic product is still trending weak — in that state, it seems the BOJ has decided that it’s appropriate to maintain policy.”

The decision will leave the US bond market and global risk sentiment the key drivers of the yen in the short-term, according to strategists. Global bonds rallied Friday, supporting the move in the Japanese market, as investors mulled pockets of trouble in the US banking sector.

Yen’s Fate in the Hands of US Market After Kuroda Stands Pat

Despite lingering speculation that the BOJ will have to tweak the yield curve-control framework at some point, this time the bank didn’t face the kind of intense market attack it saw in the run-up to the January meeting. The BOJ bought a record amount of government bonds that month to defend its 10-year yield cap, after the BOJ unexpectedly widened it in December. 

While BOJ officials continue to see distortion in the shape of Japan’s yield curve, the central bank still needs time to look at the impact of various measures taken since December, people familiar with the matter told Bloomberg earlier. 

Almost two-thirds of BOJ watchers expect a monetary policy change by the middle of this year with June being the most popular timing, according to a Bloomberg poll that followed Ueda’s first parliamentary confirmation hearings.    

In the period through to the April 27-28 gathering, the BOJ will go through major leadership change. Two deputy governors will step down on March 19, replaced by one of Kuroda’s key policy architects Shinichi Uchida, and former Financial Services Agency chief Ryozo Himino.

Kuroda will conclude the longest governorship in the BOJ’s 140-year history on April 8. After a decade of massive stimulus, the central bank’s stance is that Japan is no longer in a deflationary state. But Kuroda came short of achieving his stable inflation target after initially aiming to hit it in two years. The outgoing chief said that was his “only regret.”

“Striking a balance between reducing the side effects of the current easing framework and aiming for underlying inflation is the biggest challenge,” said Jin Kenzaki, head of research for Japan and chief Japan economist at Societe Generale SA. “Kuroda himself has struggled with this balance in the latter half of his stint.”

Japan’s key inflation data is expected to show a sharp slowdown from January’s 41-year high of 4.2% in the coming months, mainly due to government subsidy measures to keep utility bills from going through the roof. 

Prime Minister Fumio Kishida last week ordered ruling coalition parties to come up with extra measures to help households deal with the higher cost of living, as real wages fell at the fastest pace in over eight years.

Kishida appears to be quietly and gradually departing from former Prime Minister Shinzo Abe’s push for extraordinary loose monetary policy. Ueda, Kishida’s pick, is known for his neutrality — his academic background contrasts with the BOJ’s tradition of having governors who are either a former central banker or a finance ministry official. 

Ueda said on Feb. 24 that his job will be to conduct the right policy at the right time, regardless of whether its normalization or a continuation of monetary stimulus.

Kuroda is set to hold a press briefing at 3:30 p.m.

--With assistance from and .

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