Reaction to Japan easing 'within expectations': Bank of Japan

TOKYO (AFP) - The market reaction to a deluge of easy money that began flooding Japan last week is "within expectations" the central bank's new chief said on Wednesday.

A relaxed and smiling Haruhiko Kuroda, the architect of a vast easing operation that will double Japan's money supply over the next two years, said the roaring stock market and the plunging yen had been "positive".

But he rebuffed charges that Tokyo was engaging in a race to the bottom and playing beggar-thy-neighbour with its currency, insisting that the global economy stood to gain from a resurgent Japan.

"I think we've seen positive market reaction" to the fresh monetary easing, the Bank of Japan (BoJ) chief told reporters in a group interview.

At his first central bank policy meeting as governor, Mr Kuroda unveiled what has been described as the economic equivalent of "shock and awe" when he set out spending plans that were much more aggressive than pundits had predicted.

The programme includes vast purchases of riskier assets such as exchange-traded funds (ETFs) and real-estate investment trusts, as well as the vacuuming up of the bulk of longer-term government bonds.

The bank also pledged to meet a 2 per cent inflation target within two years, a key aim of a government that is intent on reversing the years of falling prices that have cast a 15-year shadow on Japan's faltering economy.

Almost immediately, the medicine kicked in, with yields on benchmark 10-year government bonds crashing, driving investors into equities on the hunt for a return on their money.

The flood of cash took the legs out from underneath the yen and sent the currency to more-than four-year lows against the dollar, which in turn further fuelled the Nikkei 225, where exporters and financial stocks soared.

The Nikkei finished Wednesday up 0.73 per cent or 95.78 points, at 13,288.13, a closing level not seen since August 2008.

"As the quantitative and qualitative easing this time is greatly different from past policies, the market reaction so far has been within expectations," a beaming Mr Kuroda said.

In late Asian trade on Wednesday, the yen was at 99.38 to the dollar, down from about 92.90 yen before the BoJ meeting last week. It was 130.32 yen to the euro, against 119.50 yen a week ago.

Asked about criticism by industry leaders abroad who have complained that Tokyo is seeking an unfair exporting advantage by driving the currency lower, Mr Kuroda was bullish.

The purpose of the fresh easing "is to achieve the inflation target of 2 per cent as soon as possible. It is not about targeting a specific rate," he said.

"As a result of domestic monetary policy aimed at price stability, if the Japanese economy takes a steady path to recovery... that would benefit not only Japan but the whole world economy," he said.

The former Asian Development Bank chief, a fluent English speaker, said he would be explaining his position to his opposite numbers in the G20 when they meet in Washington later this week on the sidelines of twice-yearly IMF and World Bank meetings.

Observers hailed the BoJ's easing as a "gigantic step" and a "brave new world" with moves that surprised markets used to less aggressive action from Japan's often timid central bank.

However, even those who lauded the bank's efforts concede it was a step into uncharted territory, a plan that could backfire and leave Japan saddled with debt and little else.

But Mr Kuroda said on Wednesday he was confident the measures would do only what they are supposed to, and would not result in stock or asset bubbles like those that marked the late 1980s in Japan.

"We don't think the latest measures will trigger serious side-effects that prevent us from achieving the 2 per cent inflation target.

"The BoJ's policy in the past was incremental easing, which proved itself ineffective," he said, adding the latest measure was a break from convention.

Mr Kuroda said mistakes by some of his predecessors had exacerbated the deflation that has hobbled Japan.

"As to the problem of the Bank of Japan, too-hasty exits from monetary easing in 2000 and in 2006 had some influence" on prices, he said.

"Although there are various reasons behind deflation, bucking the trend - either it's a downward trend or an upward trend toward inflation - is a central bank's duty.

"The responsibility to get the economy out of deflation rests with the central bank."