BOJ dispels view risk of loss will impede easy-policy exit

investing.com:

By Leika Kihara

TOKYO (Reuters) — Bank of Japan Governor Kazuo Ueda said considerations over the central bank's finances would not prevent it from phasing out its massive monetary stimulus when the appropriate time comes.

While Ueda said there was «still a distance to go» before the BOJ exits ultra-loose monetary policy, his remarks come at a time when markets are rife with speculation he will dismantle his predecessor Haruhiko Kuroda's radical stimulus programme.

Speaking at an academic seminar on Saturday, Ueda said the BOJ's profits will be squeezed when it raises interest rates because doing so would increase interest rate payments it makes to financial institutions' reserves parked at the central bank.

But it is also likely to earn higher interest income as its current government bond holdings are replaced by higher-yielding bonds, he said, adding it was hard to accurately predict to what extent a future exit could affect the BOJ's finances.

«The objective of the Bank's monetary policy is achieving price stability, which is its mission as stipulated by law. Considerations of the Bank's finances, etc. do not prevent it from implementing necessary policies,» Ueda said in a speech at an annual meeting of the Japan Society of Monetary Economics.

«A central bank's ability to conduct monetary policy is not impaired by a temporary decrease in its profits and capital, provided that it conducts appropriate monetary policy,» he said.

Under a policy called yield curve control (YCC), the BOJ guides short-term interest rates at -0.1% and caps the 10-year government bond yield around 0% to reflate growth and push up inflation sustainably around its 2% target. It also maintains a massive asset-buying programme deployed in 2013.

So