BOJ policymakers signal higher threshold for further easing

Bank of Japan policymakers kept to their pledge to expand stimulus but only to protect the economy from external shocks, signalling that the threshold for further easing has been raised after last month's policy revamp.

BOJ Governor Haruhiko Kuroda made no direct reference of the need to achieve his inflation target quickly when he reiterated his readiness to cut interest rates or expand asset buying.

"We are prepared to ease policy again, including lowering short-term rates, if we judge that the merits outweigh the costs," Kuroda told Parliament on Wednesday.

Yutaka Harada, who has been among the most vocal advocates of aggressive money printing on the nine-member board, also said the BOJ would ease if "sudden changes in the global economy" threatened the price target.

Before last month's change in policy framework, BOJ officials have said they would not hesitate to ease if it would hasten achievement of their elusive price growth target.

"It is clear from the change in the policy framework that the BOJ has essentially given up on a quick victory in achieving 2 per cent inflation," said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

"The BOJ will not be proactively easing policy to achieve 2 per cent inflation quickly. It is moving toward a more flexible inflation target," he said.

The comments by Kuroda and Harada came ahead of the BOJ's next review on October 30-November 1, when it may again push back the timing for achieving its price target in a quarterly review of its forecasts.

Only a handful of analysts polled by Reuters predicted the BOJ would ease at the next review, while about 70 per cent said it would act next year.

The BOJ last month switched its policy to target interest rates and away from expanding the monetary base - or the pace of money printing - after years of massive asset purchases failed to jolt the economy out of decades-long stagnation.

Analysts say the move aimed to change the BOJ's framework into one suited for a long-term battle to hit its 2 per cent inflation target. Kuroda has acknowledged it will take some time to hit the goal.

The BOJ maintained a loose pledge to keep the size of its balance sheet roughly unchanged even after shifting to a rate target, reflecting the views of board members such as Harada who insist aggressive money printing was key to ending deflation.

Harada, who voted for last month's policy make-over, said the BOJ's pledge to maintain its huge monetary base remained crucial in raising inflation expectations in the long run.

The BOJ's holdings of government bonds comprised just 30 per cent of Japan's public debt, leaving room for additional purchases by the central bank, he said in a speech to business leaders in the central Japan prefecture of Nagano.

"Japan is quite distant from reaching the limits of monetary easing," he said.