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UPDATE 1-BOJ's Nakaso says revenues could slip when it ends easy policy - paper
October 3, 2017 / 11:49 PM / 2 months ago

UPDATE 1-BOJ's Nakaso says revenues could slip when it ends easy policy - paper

* Short-term revenue fluctuations won’t affect policy - Nakaso

* Adds aiming for 2 pct inflation would stabilise FX

* Important for Japan to create sustainable fiscal framework (Adds quote, detail)

TOKYO, Oct 4 (Reuters) - Bank of Japan Deputy Governor Hiroshi Nakaso said the central bank may incur revenue losses when it exits ultra-easy monetary policy but that won’t affect policy-making, the Asahi newspaper reported on Wednesday.

The BOJ could smoothly withdraw its massive stimulus and learn from the experience of the U.S. Federal Reserve, which is already tapering its asset purchases, Nakaso was quoted as saying in an interview.

“We can’t rule out the chance the BOJ may incur red ink ... but short-term fluctuations in the BOJ’s revenues won’t disrupt our policy-making,” he said.

In a bid to accelerate inflation to its ambitious 2 percent target, the BOJ floods markets with cash by buying huge amounts of government bonds.

The central bank also charges 0.1 percent interest on a portion of excess reserves financial institutions park with the BOJ to encourage them to lend it out instead.

Critics of the radical monetary policy warn the BOJ may incur losses on its huge bond holdings when it withdraws monetary stimulus, as that would trigger a rise in long-term interest rates that hurts bond prices.

To mop up surplus cash from markets the BOJ would also need to pay higher interest on excess reserves financial institutions deposit at the central bank, which would also hurt its profits.

Nakaso defended the BOJ’s 2 percent inflation target, saying that setting its price goal at levels equivalent to other major central banks would stabilise currency moves in the long run.

He also called on the government to take a “balanced” approach on fiscal policy, when asked about criticism by some analysts that the BOJ’s ultra-easy policy was allowing lawmakers to drag their feet in fixing Japan’s tattered finances by keeping borrowing costs essentially at zero.

“It’s important to create a sustainable fiscal framework in Japan,” he said. (Reporting by Leika Kihara; Editing by Paul Tait and Eric Meijer)

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