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Report: Kuroda's 2nd term signals BOJ's gradual retreat from stimulus

Japanese Prime Minister Shinzo Abe's decision to reappoint Bank of Japan Governor Haruhiko Kuroda for another five-year term means the central bank will continue to gradually retreat from crisis-mode stimulus, Reuters reported Feb. 20, citing former BOJ board member Takahide Kiuchi.

The government reappointed Kuroda for another five-year term on Feb. 16.

"A de facto normalization of monetary policy is already taking place and will continue under a reappointed Kuroda," said Kiuchi, who served on the central bank's nine-member board until July 2017. He is currently executive economist at Nomura Research Institute.

While the government hopes the BOJ will continue working to reflate the economy, Kuroda's reappointment signals that the government is no longer insisting that the BOJ meet its 2% inflation target quickly, he said. Japan's core consumer prices, which exclude fresh food items, rose 0.9% year over year in December 2017, unchanged from its pace in November 2017, government data showed Jan. 26.

During his time on the BOJ's board, Kiuchi warned of the perils of Kuroda's massive stimulus program to raise inflation. He predicted the bank would be forced to slow its bond buying given the huge costs of its stimulus program.

The BOJ has already slowed its bond purchases to about half the pace it loosely commits to buy each year, Kiuchi said. While the BOJ will continue to slow its bond buying, moving away from negative rates may take time as this would require watering down its price target, he said.

"Policy normalization doesn't mean the BOJ will abandon its ultra-easy policy. It's just about gradually moderating the degree of monetary support," he said.