UPDATE 1-BOJ nominee Kuroda: C.bank must influence market expectations

Sun Mar 10, 2013 8:38pm EDT

* Kuroda: limited room to lower rates further

* Kuroda: BOJ's asset purchases not sufficient

* Govt nominating new BOJ governor in monetary policy shift

By Stanley White and Tetsushi Kajimoto

TOKYO, March 11 (Reuters) - Haruhiko Kuroda, the government's nominee to head the Bank of Japan, said the central bank should focus on influencing market expectations because there is "limited room" to lower interest rates further.

Kuroda said the BOJ had not been buying enough assets to meet its 2 percent inflation target and that if appointed he would do whatever it takes to achieve this goal.

"We're in an environment where there is limited room to lower interest rates further," Kuroda said in a confirmation hearing at the upper house of parliament on Monday. "That's why it is important to try to influence market expectations."

Last month Prime Minister Shinzo Abe nominated Kuroda, who shares his views on aggressive monetary tactics, to lead a BOJ drive to end nearly two decades of deflation.

Kuroda is expected to be approved by parliament because opposition parties, whose support is needed in the upper house, have indicated they would back him.

He said last week that the BOJ should consider frontloading its open-ended asset purchases planned from next year, with an eye on huge purchases of longer-dated government debt.

At a policy review last week, the BOJ held rates steady, and said in its assessment the economy had stopped worsening.

Investors expect the central bank will become more aggressive once Kuroda takes over as governor after incumbent Masaaki Shirakawa and his two deputies step down next week.

Abe's policy prescriptions of monetary and fiscal stimulus, dubbed Abenomics, have so far helped drive the yen to 3-1/2 year lows against the dollar, supporting the export engine.

Abe has also nominated academic Kikuo Iwata, who supports unconventional monetary policy, and BOJ official Hiroshi Nakaso as the two deputy governors.

The nominations must be approved by both houses of parliament. Abe's ruling camp controls the lower house but lacks a majority in the upper house.

The BOJ has agreed to buy assets or make loans totalling 101 trillion yen ($1.07 trillion) by the end of this year, part of which includes buying government bonds with a maturity of up to three years.

Under relentless pressure from Abe, the BOJ said in January it would switch to open-ended asset buying from 2014 to achieve the 2 percent inflation target.

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