March 14, 2019 / 10:16 AM / in 11 days

BOJ's ultra-easy policy gets mixed marks; some urge more flexibility: Reuters poll

TOKYO (Reuters) - Economists gave mixed marks to the Bank of Japan’s six-year, super-loose monetary policy under Governor Haruhiko Kuroda, with ratings split among “good,” “satisfactory” and “improvement needed,” a Reuters poll showed.

FILE PHOTO: Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a news conference at the BOJ headquarters in Tokyo, Japan July 31, 2018. REUTERS/Toru Hanai

The assessment comes amid expectations the central bank will start normalizing its monetary policy, which was intended to spur inflation. That included buying up assets to flood the monetary system with cash and setting a target for the government bond-yield curve.

But the experiment has failed to lift inflation to the BOJ’s 2 percent target — core CPI has been hovering at around 1 percent for months. It did help to weaken the yen, which has been a boon to Japan’s exporters and supported the stock market.

Out of 37 economists who answered an extra question on Kuroda’s management over the six years, one rated it “excellent” and 11 “good.” Ten analysts each said “satisfactory” and “improvement needed”. Five said “unsatisfactory.”

Some economists said Kuroda should be given credit for lifting Japan out of persistent deflation, when falling prices dragged on economic growth and wages.

“The BOJ has carried out aggressively what it could and helped make Japan’s economy no longer in deflation, which was the big achievement,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.

Others said the central bank needs to take stock of why its policy has failed to achieve the desired results and adopt a more flexible approach.

“The BOJ needs to carry out comprehensive assessment of its yield curve control policy,” said Mari Iwashita, chief market economist at Daiwa Securities. “It should be more flexible in how it defines the 2 percent inflation target,” echoing similar recent comments from Finance Minister Taro Aso.

The decline in Japan’s bond yields because of the BOJ’s policy has taken a toll on Japanese banks by narrowing or even erasing the profit margin on loans, economists warned.

“Politically, it will probably be difficult for the BOJ to scrap its 2 percent inflation target, but the central bank should have managed monetary policy in a balanced manner, taking into consideration of side effects,” said Izuru Kato, chief economist at Totan Research.

About two-thirds of the economists, 23 of 36, believed that the optimal target for Japan’s consumer price index was about 1 percent. Nine said it was around 2 percent. In last June’s poll, economists were split on that question.

Most economists surveyed — 29 of 39 — say the BOJ’s next move will be to tighten its monetary policy. The remaining 10 predict the bank will ease further, up from nine last month.

The BOJ may wait to make a move until it can assess the effect of a planned sales tax hike in October from 8 percent to 10 percent.

“The BOJ will be reluctant to ease further. Side effects from the current policy are already the center of much discussion,” said Bjørn Tangaa Sillemann, an economist at Danske Bank. “Tightening measures are not likely to be discussed before the economy has started clear of the sales tax hike in October.”

FILE PHOTO: A Japanese flag flutters atop the Bank of Japan building in Tokyo, Japan June 16, 2017. REUTERS/Toru Hanai

The BOJ is likely to maintain its stimulus program and warn of growing overseas risks at this week’s rate review, sources have told Reuters

As for their outlook on inflation, economists project nationwide core CPI, which includes oil products but not fresh food, will rise 0.7 percent in the new fiscal year, which starts in April, and 0.8 percent in the following fiscal year.

They predict Japan’s economy will grow 0.6 percent both years, the poll found, compared with 0.7 percent and 0.5 percent expected in the February survey.

Reporting by Kaori Kaneko, polling by Khushboo Mittal, editing by Malcolm Foster, Larry King

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