Kuroda Defends Bank of Japan’s Ultra-Dovish Stance in Final Policy Meeting

Intro

Haruhiko Kuroda, the outgoing governor of the Bank of Japan, defended the central bank’s ultra-dovish monetary policy stance at his final policy meeting, leaving the negative interest rate unchanged at -0.1%.

Current Situation

Kuroda, who has led the central bank’s ultra-dovish monetary policy for the past decade, has reiterated the central bank’s target to keep the yield on the 10-year Japanese Government Bond (JGB) around 0% and defended his policy even though global central banks in recent months raised interest rates in a bid to tame inflation.

The central bank had 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 purchasing unlimited government bonds.

Kuroda was first appointed in March 2013, and his five-year term will end on April 8. Incoming Bank of Japan chief Kazuo Ueda will replace him.

Bank of Japan’s Policy Statement

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

“Financial conditions have been accommodative on the whole, although weakness in firms’ financial positions has remained in some segments,” the central bank said.

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

The central bank held off changes to its yield curve control policy and inflation target, saying it will aim “to achieve the price stability target of 2 percent, as long as it is necessary for stably maintaining that target.”

Related Facts

In December, the BOJ shocked global markets when it widened its tolerance range to 50 basis points above and below its 0% target, up from 25 basis points previously.

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%.

After the announcement, the Japanese yen weakened roughly 0.3% and traded at 136.6 against the U.S. dollar.

Key Takeaway

At its recent meeting, the Bank of Japan maintained its ultra-dovish monetary policy stance, with outgoing Governor Haruhiko Kuroda defending the policy despite global central banks raising interest rates. The parliament also approved nominees as the next Bank of Japan governor and deputy governors.

Conclusion

Kuroda’s defense of the Bank of Japan’s monetary policy at his final meeting raises questions about the effectiveness of the ultra-dovish monetary policy, especially as global central banks move towards tightening. However, the Bank of Japan remains committed to its ultra-dovish stance.