BOJ’s Gradual Normalization of Policies when Implemented

The central bank will have a gradual normalization of the monetary policy and they have to take note of any risks to the economy, according to the  Bank of Japan Governor, Haruhiko Kuroda, on Wednesday.

Kuroda addressing to the lower house of parliament said that aggressive monetary easing could not be continued when the price target of inflation has been reached amid a steadfast growth of the economy.

Also, he added that the public debt finances are not included in the mandate of the BOJ. The Asian central bank had a negative 0.1 percent interest rate policy and buying of government debt to maintain the 10-year yields close to zero.

However, in case that the two percent target was not reached while the policy gets to normalize, this would be implemented in a gradual manner with consideration to the economic condition.

A total withdrawal to the quantitative easing is still far from happening since the core consumer prices increased by only 0.9 percent in January last year, which is still below the target figure.

Notwithstanding, the economists are still concern about the quantitative easing to be extended for a longer period of time that would negatively affect financial markets when it is stopped.

Kuroda mentioned the U.S. Federal Reserve as an example of slowly exiting the quantitative easing and normalizing monetary policy but still cautious on the risks ahead.

A few economists are fine with a bigger increase in 10-year yields since the interest rates are already anticipated to rise when the economy of the nation has gotten better.  

Exchange-traded funds are also bought by the BOJ which received criticism in this policy as it disrupted the stock prices.