(Bloomberg) — Haruhiko Kuroda addresses reporters one last time as Governor of the Bank of Japan on Friday, ending a decade-long tenure of surprises that rocked global financial markets and changed the image of the previously well-known central bank too little too late.
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After being chosen by former Prime Minister Shinzo Abe, Kuroda opened a new chapter for central banking with aggressive easing. He spent $11.7 trillion to keep his stimulus going, making the BOJ’s balance sheet relative to the size of the economy many times larger than that of the Federal Reserve and the European Central Bank.
The governor said the massive stimulus managed to pull the nation out of 15 years of deflation. Still, he leaves the mission of exiting unorthodox, ultra-loose monetary policy uncompleted, and the task will now fall to his successor and longtime friend, Kazuo Ueda.
Kuroda said it was a regret that the BOJ failed to create sustainable inflation under his oversight. Ueda has indicated he will continue the BOJ’s current easing policy until inflation stabilizes, although market participants will be watching closely if and how he addresses the growing side effects of his yield curve control program.
The BOJ’s influence in global financial markets increased under Kuroda and is now seen as the last anchor of low interest rates after other global central banks rushed to tame inflation with higher interest rates. Kuroda’s rock-bottom interest rates pushed the yen to a 32-year low, raising household living costs and drawing some criticism.
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Before Kuroda, the BOJ’s anti-deflation efforts were widely considered weak and behind the curve.
Kuroda’s methods of shock and awe changed that. The latest surprise came in December, when the BOJ’s move to widen the range on Japanese 10-year bond yields shocked global financial markets from US Treasuries to gold. Kuroda described the move as aimed at improving the way financial markets work, although he had previously described such a change as a rate hike and potentially damaging to the economy.
Such easing measures even raised concerns that they were doing too much and creating market distortions. Ultra-loose policy is blamed for drying up activity in the Japanese bond market. The bank now owns more than half of the Japanese government bond market and is also essentially the largest owner of shares in companies owned by Advantest Corp, through purchases of exchange-traded funds. to TDK Corp. are sufficient.
Most economists expect some kind of policy change later this year. However, breaking away from the stimulus framework without disrupting markets will be a difficult balancing act.
After the move in December, around 71% of BOJ observers said the bank had communication issues — an issue Ueda is likely to pressure to address. The incoming governor is expected to hold an inaugural press conference on Monday, where investors will listen for hints of a change of course.
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