* Kuroda signals effective end of bank note rule
* No intention to bankroll government spending-Kuroda
* Kuroda says too early to discuss stimulus withdrawal
* Kuroda reiterates intent of buying more, longer-dated debt
By Stanley White
TOKYO, March 28 The Bank of Japan will not
bankroll government spending, but it has already exceeded
self-imposed limits on asset purchases and will continue to do
so, its new governor said on Thursday in a signal he intended to
deliver on promises of overhauling policy.
Haruhiko Kuroda also told lawmakers he was looking at buying
longer-dated government bonds to end 15 years of deflation,
reinforcing expectations the BOJ's new leadership would use next
week's policy meeting to launch its radical easing campaign.
Yields on benchmark 10-year government bonds hit a decade
low for the sixth day in a row on Thursday as investors braced
for the increased central bank purchases of debt.
"Scrapping the BOJ's bank-note rule is an option to
consider, but this decision must be taken at the monetary policy
committee," Kuroda told lawmakers in the upper house of
parliament, a week after taking charge at the central bank.
"We've already broken this rule and asset purchases will
exceed bank notes in circulation even more in the future."
The rule limits the BOJ's long-term JGB holdings to the
value of bank notes in circulation, and it is seen as a way to
prevent both debt purchases from spiralling out of control.
However, the BOJ's asset purchase schemes have become so
complex over the years that enforcing the rule is no longer
practical, some economists say.
Still, there would be important symbolism in formally
abandoning the rule, as the BOJ originally created the limit to
avoid giving the impression it was monetising debt.
Speaking ahead of the April 3-4 policy meeting, Kuroda said
the BOJ would seek to bring down market interest rates by buying
longer-dated government bonds, largely repeating his message
from Tuesday when he addressed the parliament's lower house
The 10-year yield dipped 0.5 basis point to
0.510 percent, its lowest since June 2003, when it hit a record
trough of 0.430 percent due to the BOJ's quantitative easing
It has fallen 28.5 basis points so far this quarter, on
track for its biggest three-month fall since April-June 2010.
Expectations Kuroda would steer the BOJ toward more
aggressive action have also seen investors sell the yen, helping
push the dollar up to a 3-1/2 year high of 96.71 yen earlier
Kuroda, previously head of the Asian Development Bank, has
promised to pursue bolder, unorthodox policies and do "whatever
it takes" to end deflation.
Those policies centre on a 2 percent inflation target, which
was adopted in January. Kuroda told lawmakers the key to success
was to show strong commitment to the target, communicate it
clearly to markets and back it up with action.
"We need to follow through on what we say and deliver bold
monetary easing so as not to betray market expectations," Kuroda
Kuroda has said the inflation goal could be reached in
around 2 years, but many doubt it can be achieved that quickly.
People familiar with BOJ thinking told Reuters on Wednesday
the central bank was likely to start open-ended asset purchases
immediately rather than in 2014 and consider setting a new
target to buy longer-dated bonds at next week's meeting.
They said the central bank was likely to increase the
amount of assets it buys and to extend the duration of bonds it
targets to five years or even longer, from the current three
Under the BOJ's current program, it has pledged to supply
101 trillion yen by the end of 2013 by buying assets and issuing
loans, but the debt purchases are limited to maturities of three
years or less.
The BOJ also buys 21.6 trillion yen worth of JGBs per year
in "rinban" market operations, which can target any duration.