BOJ can't exit stimulus with inflation below 1%, says Governor candidate

The bank has already laid the groundwork for normalising monetary policy by revamping its policy framework last September and gradually slowing its bond purchases

The Bank of Japan likely won't be able to exit its massive stimulus programme while inflation is hovering below 1 per cent, Takatoshi Ito, an academic who is a potential candidate to become the next BOJ governor, said on Wednesday.

"What's important is for inflation to accelerate, which would give (the BOJ) quite some flexibility in guiding monetary policy," Ito, a Columbia University professor, told a seminar in Tokyo.

The BOJ has already laid the groundwork for normalising monetary policy by revamping its policy framework last September and gradually slowing its bond purchases, though raising its yield targets would be some time away, he said.

"While inflation is hovering below 1 per cent, it would be hard for the BOJ to exit (from ultra-loose monetary policy)," said Ito, who is considered a candidate to succeed BOJ Governor Haruhiko Kuroda when his five-year term ends in April next year.

The Bank of Japan kept policy settings steady on Tuesday but a board newcomer called for clearer commitment to ramp up stimulus if necessary, potentially complicating future efforts by the central bank to dial back its massive monetary support.

With inflation still distant from his 2 per cent target, BOJ Governor Haruhiko Kuroda stressed that he saw no immediate need to exit its ultra-easy policy even as other major central banks have started to unwind their crisis-era monetary programmes.

Acknowledging the rising costs and diminishing returns of his stimulus programme, however, Kuroda signaled the chance of slowing the BOJ's exchange-traded fund (ETF) buying before embarking on a full-fledged withdrawal of stimulus.

"When adjustments to our framework become necessary, they don't need to involve everything in the BOJ's framework. Our (ETF) purchases focus on affecting risk premium, so we will take that into account in making a decision," Kuroda told a briefing.