BoJ's Sakurai rules out near-term hike in bond yield target

Bank of Japan board member Makoto Sakurai ruled out the chance of an imminent hike in the central bank's bond yield target, stressing the need to maintain its massive stimulus programme to prop up inflation and fend off overseas economic risks. Sakurai said rising protectionist sentiment in the world was among risks to Japan's economic outlook, warning that protectionism would disrupt supply chains, dent trade and hurt prospects of a sustained global recovery.
With Japan's economy recovering steadily, policymakers should not seek to "forcefully" stimulate short-term demand, Sakurai said, shrugging off the need to deliver additional monetary stimulus measures any time soon. "The economy is in good shape and the government's fiscal spending plans are being implemented now," Sakurai told a news conference after meeting business leaders in Saga, southern Japan, on Thursday.
"Maintaining the current fiscal and monetary stimulus measures would be enough."
The BoJ, however, must also hold off on withdrawing stimulus any time soon with inflation well below its 2 percent target, said Sakurai, among the strongest proponents of aggressive monetary easing in the central bank's nine-member board. "There were some views in the market that the BoJ would consider raising its long-term interest rate target in the near future," Sakurai said in a speech to business leaders in Saga. "But underlying price growth remains moderate and uncertainties on overseas economies persist. It is therefore crucial to patiently maintain our monetary easing."
Under a new policy framework adopted last year, the BoJ has pledged to guide short-term interest rates to minus 0.1 percent and cap the 10-year government bond yield around zero percent. Growing signs of life in Japan's economy have presented the BoJ with a fresh communications challenge, pushing it to be clearer with markets on how it might dial back its stimulus - even though such action remains a long way off.
Sakurai said it was premature to debate specifics on how to withdraw stimulus, but the BoJ must communicate its policy intentions clearly to prevent any disruption to financial markets when it comes time for it to withdraw stimulus. "In Japan's case, the impact (of an exit) could be big because of the central bank's huge balance sheet," he said.