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 In a speech to business leaders, Kuroda stood firm in the face of
criticism that last month's unexpected monetary easing has
accelerated unwelcome falls in the currency, saying that the "BOJ
will continue to take action" to vanquish deflation.
But not all in the BOJ's nine-member board share Kuroda's optimism
that the benefits of further stimulus outweigh the costs, minutes of
last month's meeting showed, suggesting that the central bank chief
may struggle to push through more easing.
Some BOJ policymakers opposed last month's easing, warning that
doing so would hurt the BOJ's credibility if its bond-buying is seen
as tantamount to debt monetization, according to minutes of the
BOJ's Oct. 31 meeting released on Tuesday
Nonetheless, Kuroda defended the Oct. 31 easing as a necessary step
to ensure the Japanese public shakes off its "deflationary mindset,"
and to encourage companies to start investing and hiring more on
expectations that prices will rise ahead.
"To achieve the price stability target, the BOJ has been taking
'action' and will continue to do so," he told business leaders in
Nagoya, a central Japan city home to auto giant Toyota Motor Corp.
While business executives present at the meeting generally welcomed
the BOJ's stimulus, some warned that recent yen declines were too
rapid and were hurting smaller companies.
Kuroda declined to discuss how recent yen falls affected the overall
economy, only saying that while a weak yen benefits exports, it
hurts households and non-manufacturers by raising the cost of
imports.
"We will carefully watch market moves, including currency moves, and
their effect on the economy."
The yen has come under renewed pressure since the BOJ stunned
markets by expanding its quantitative and qualitative easing (QQE)
program last month. The dollar is hovering around 118.44 yen on
Tuesday, after scaling a seven-year high of 118.98 yen last week.
Last month's monetary easing was decided by a tight 5-4 vote after
intense debate over why the BOJ ought to expand stimulus when it was
clinging to the view the economy was recovering.
Since that meeting, economic data showed that Japan slipped into
recession, and three of the four board members who opposed extra
easing voted in favor at the subsequent meeting on Nov. 18-19.
DEFLATION FIGHT
The BOJ has made some progress in pulling Japan out of 15 years of
nagging deflation, but the euro-zone is drifting closer to deflation
and now there are concerns that other economies, notably China and
South Korea, also face deflationary risks.
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European Central Bank policymaker Christian Noyer, speaking in
Tokyo, said that the ECB needs to influence inflation expectations,
which is a major component of the BOJ's policy framework.
However, one area where the two central banks differ is the ECB has
so far avoided the purchases of government debt that the BOJ has
used to push down yields.
"Monetary policy must aim at influencing both nominal interest rates
and inflation expectations," Noyer said.
Advocates of the BOJ's expanded debt purchases have said the central
bank needed to act to prevent recent oil price falls from hurting
inflation expectations, and in doing so ought to expand asset
purchases at "as massive as scale as possible" to boost sentiment,
the minutes showed.
But those opposed warned that further easing would accelerate yen
falls and may not lift business sentiment, given interest rates were
already very low, according to the minutes.
Another risk of the BOJ's debt buying program is that it could
disrupt the functioning of the bond market because its purchases are
so large, Deputy Governor Hiroshi Nakaso said on Tuesday.
Some institutional investors have had difficulty borrowing JGBs, but
indicators of liquidity show no signs of major disruptions, he said.
(Editing by Chris Gallagher & Shri Navaratnam)
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