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Appropriate for BOJ to keep ultra-loose policy - Amamiya
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Challenge of exit is timing, communication - Amamiya
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Departure of "Mr. BOJ" symbolises end to stimulus
experiment
(Recasts with Amamiya's quotes, context on BOJ policy)
By Leika Kihara
TOKYO, Feb 20 (Reuters) - Bank of Japan (BOJ) Deputy
Governor Masayoshi Amamiya said on Monday the bank has
sufficient operational tools to achieve a smooth exit from
ultra-loose monetary policy.
While the BOJ's market operation to defend its yield cap is
facing a "difficult" phase, it was appropriate to maintain
ultra-loose policy for the time being to ensure Japan
sustainably achieves its 2% inflation target, Amamiya said.
The BOJ has various tools it can use when the time comes to
end ultra-low interest rates, he told parliament, brushing aside
the view held by some market players that the exit from
prolonged monetary easing could destabilise markets.
Instead of selling government bonds outright in the market,
the BOJ can forgo rolling over bonds that reach maturity to
whittle down its huge balance sheet, he said.
"The difficult challenge for the BOJ is to determine whether
conditions have fallen in place to exit, and how to communicate
(its policy intention) to the market," said Amamiya, whose term
as deputy governor ends in March.
Amamiya is nick-named "Mr. BOJ" for masterminding many of
the bank's unconventional monetary easing ideas, including
Governor Haruhiko Kuroda's massive asset-buying programme and
yield curve control (YCC).
His departure, which comes three weeks before that of
Kuroda, symbolises an end to their radical monetary experiment
that began in 2013 with the launch of the asset-buying programme
that aimed to shock the public out of a deflationary mindset.
Japan's consumer prices have been flat or falling since
1999, and slid by 0.1% on average in 2012. With the launch of
the stimulus in 2013, BOJ policymakers were trying to get
inflation up to 2% in roughly two years.
After the heavy money printing failed to fire up inflation,
the BOJ shifted to a policy targeting interest rates with the
launch of YCC in 2016.
Amamiya said he still believed the BOJ made the right
decision at the time by committing to achieve 2% inflation in
"roughly two years" with massive asset purchases.
While inflation has exceeded the BOJ's 2% target, Kuroda has
stressed the need to maintain YCC to ensure rising inflation is
accompanied by higher wages and solid domestic demand.
But the BOJ has struggled to defend an implicit 0.5% cap for
the 10-year bond yield under YCC, as markets price in the chance
of a tweak to ultra-low rates under Kuroda's successor who takes
the helm in April.
The government named academic Kazuo Ueda as its pick to
become next BOJ governor, a surprise choice that could heighten
the chance of an end to its unpopular yield control policy.
(Reporting by Leika Kihara; editing by John Stonestreet and
Sharon Singleton)
