April 5, 2013 / 4:26 AM / 5 years ago

UPDATE 1-BOJ's Kuroda: monetary onslaught won't cause asset bubbles

* Kuroda brushes aside concerns about asset bubbles
    * Stocks extend rally, yields tumble on BOJ's easing
    * Large JGB purchases raises worries about fiscal discipline

    By Leika Kihara and Stanley White
    TOKYO, April 5 (Reuters) - Bank of Japan Governor Haruhiko Kuroda played
down concerns his unprecedented burst of monetary stimulus would create
asset-price bubbles even as it delivered an immediate pay-off in global markets,
with government bond yields at a record low, the yen hitting a 3-1/2 year trough
and stocks surging to multi-year highs.
    The yen weakened past 97 per dollar on Friday for the first time since
August 2009, a day after the BOJ vowed to inject about $1.4 trillion into the
economy in less than two years in a dose of shock therapy to end two decades of
    The Nikkei share average jumped as much as 4.7 percent, extending Thursday's
2.2 percent rise and breaking through 13,000 points for the first time since
August 2008. The 10-year JGB yield fell as much as 12 basis
points to a record low of 0.315 percent.
    "We will be vigilant of the risk of a bubble. I don't think there's a bond
or stock market bubble now and I don't see one emerging any time soon. But we
will be vigilant of the risk," Kuroda told the lower house of parliament.  
    The BOJ's strategy to reach 2 percent inflation within two years was viewed
as a radical gamble to revive the economy. It will buy about 7 trillion yen ($73
billion) of bonds per month, equivalent to about 1.4 percent of gross domestic
product. By comparison, the U.S. Federal Reserve is buying $85 billion of bonds
per month, about 0.6 percent the size of the economy.
    The central bank will also increase purchases of exchange-traded funds by 1
trillion yen per year and real-estate trust funds by 30 billion yen per year.
    "We think there is a risk of a bubble," said Hiroshi Shiraishi, senior
economist at BNP Paribas Securities.
    "If these types of asset purchases are going to work, then they work by
distorting asset markets."
    A falling yen risks upsetting other Asian exporters who may lose
competitiveness, and leave Japan open to accusations it is covertly devaluing
the currency. Emerging economies will also be concerned about the potential
flood of inflows as investors borrow cheaply in yen and then invest elsewhere,
as they have done with the U.S. Federal Reserve's quantitative easing.
    The Fed and the Bank of England have also embraced large-scale bond
purchases in an effort to boost growth, while the European Central Bank said on
Thursday it would keep policy loose for as long as necessary to revive the
struggling euro zone economy.    
    "Like other central banks, the BOJ will carefully watch asset price moves,
job and wage conditions and other data in striving to achieve price stability,"
Kuroda said in testimony that was effectively a re-application for his job.
    Kuroda's predecessor, Masaaki Shirakawa, was not due to step down until
April 8, but decided to leave office in mid-March so the government could
appoint a new governor and two deputies at the same time. A procedural quirk
meant Kuroda was initially only appointed for the remainder of the Shirakawa's
term, and now needs to be voted in again for a full five-year term.
    The overhaul of monetary policy means the BOJ's monthly government debt
purchases will total about 70 percent of new debt issued by the government.
Purchases of this scale will do a lot to keep yields low, but it also raises
concerns that the BOJ has basically agreed to bankroll fiscal spending.
    At more than twice the size of its $5 trillion economy, Japan's public debt
burden is already the worst among major economies. Politicians regularly talk
about fiscal discipline, but have made little progress in trimming debt.
    Moody's Investors Service said on Friday that while the Japanese
government's borrowing costs are likely to remain very low over the next two
years, there are concerns about whether domestic savings can finance future
government debt.
    When the BOJ announced its 2 percent inflation target in January, the
government agreed to take steps to ensure sound fiscal policy. But so far, the
government has been coy on the specific steps it will take to reign in debt. 
    "Based on the joint statement, the finance ministry must proceed with firm
fiscal plans so as not to damage our relationship with the BOJ," Finance
Minister Taro Aso said on Friday.
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