Jan 17 2014

Boj Didn't Say a Single Word on The Exit Plan Stokes as Prices Rise 

In the absence of the BOJ, investor demand for compensation from inflation could send the government’s borrowing costs surging, fueling the danger of a collapse in confidence in the fiscal sustainability of the world’s third-largest economy. Kuroda should start thinking about “disengaging” now, according to economist Richard Koo.“It may be too late to prevent long-term rates doing something crazy” should the BOJ hold off on tapering before inflation reaches the target, said Koo, a former Federal Reserve economist who wrote “The Holy Grail of Macroeconomics -- Lessons from Japan’s Great Recession.”The BOJ’s board will maintain its pledge to expand the monetary base by an annual 60 trillion to 70 trillion yen ($668 billion) in a two-day meeting starting Jan. 21, according to all 36 economists in a Bloomberg News survey.

 

Japan’s success in rekindling inflation is raising the stakes for policy makers to map out the endgame for monetary stimulus, given the risk of a surge in yields when the Bank of Japan winds down bond purchases.

With the BOJ’s benchmark inflation gauge past halfway to Governor Haruhiko Kuroda’s 2 percent target, yields on 10-year government securities are still the world’s lowest at 0.67 percent -- held down by central bank purchases of unprecedented scale. Even so, Kuroda, who meets with fellow board members next week, says it’s “too early” to discuss an exit strategy.