BOJ's Kuroda: "Reversal rate" helps clarify appropriate yield curve

Central Bank Governor Haruhiko Kuroda of the Bank of Japan attends ECB's Central Bank Communications Conference in Frankfurt, Germany, November 14, 2017. REUTERS/Kai Pfaffenbach

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Tuesday that a “reversal rate,” or the level where interest rate cuts by a central bank could hurt the economy, helps the BOJ understand the appropriate shape of the yield curve.

“It’s a theory that helps us understand the appropriate shape of the yield curve,” Kuroda told parliament, though adding that he did not see any sign now that the BOJ’s ultra-loose policy was causing serious damage to Japan’s banking system.

Kuroda referred to an academic study on the reversal rate in a speech earlier this month, adding to recent growing signals from the BOJ that it could edge away from crisis-mode stimulus earlier than expected.

After three years of huge asset buying failed to accelerate inflation to its 2 percent target, the central bank revamped its policy framework last year to one targeting interest rates from the pace of money printing.

With inflation remaining stubbornly low, the BOJ has come under criticism for eroding financial institutions’ margins.

Speaking at the same parliament session, Prime Minister Shinzo Abe shrugged off criticism from some lawmakers that 2 percent inflation was too ambitious a target for a country mired in two decades of deflation.

Abe said he saw no need to review a joint agreement between the BOJ and the government in 2013 that laid out steps each side would take to end deflation and achieve the inflation goal.

“A positive economic cycle is falling in place. It’s true Japan has yet to achieve 2 percent inflation, but the joint agreement remains valid,” Abe said.

“I expect the BOJ to promote bold monetary easing to achieve 2 percent inflation.”

Editing by Chang-Ran Kim & Shri Navaratnam