Japan’s next BC president says he has ideas for exiting ultra-loose monetary policy – ISTOÉ DINHEIRO

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) – Incoming Bank of Japan Governor Kazuo Ueda said on Monday he had ideas about how Japan’s central bank might exit its massive monetary stimulus, but a shift to tighter policy would only come when the country’s inflation tendency to increase significantly.

The central bank will reduce its bond purchases and is likely to move towards monetary policy normalization when sustained achievement of its 2% inflation target is in sight, Ueda said.

With inflation trending below the Bank of Japan’s target, however, the central bank is likely to stick to the current ultra-loose policy for the time being, he added.

“Big improvements must be made in Japan’s inflation trend for the Bank of Japan to shift to monetary tightening,” Ueda said.

“It’s not that I don’t have ideas on how to adjust the Bank of Japan’s current policy. But the desirable adjustment will vary depending on economic changes at the moment,” Ueda said, adding that it was premature to comment on how the central bank might change monetary policy.

For now, the Bank of Japan’s ultra-lax conduct was appropriate as the benefits of monetary policy, such as boosting growth, exceeded the costs, such as deteriorating market functions, he said.

“If the inflation trend does not pick up, the Bank of Japan should shift to a more sustainable monetary policy or an easing monetary framework that takes care of the cost of its stimulus,” Ueda told a confirmation hearing in parliament.

Ueda said he sees no need now to change the 2% inflation target or the central bank’s language in a joint statement the government signed in 2013 obliges the central bank to hit the price target as soon as possible.

He also said the Bank of Japan must watch out for an unwelcome rise in inflation, maintaining a commitment to continue increasing money printing until inflation exceeds its 2% target.

Upon parliamentary approval, Ueda will succeed incumbent President Haruhiko Kuroda, whose second five-year term as head of the bank ends on April 8.

(Reporting by Leika Kihara and Tetsushi Kajimoto)