Bank of Japan Governor Kuroda warns against overly complex forward guidance

Sat Dec 7, 2013 5:30am EST
 
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By Leika Kihara

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said central banks should avoid offering overly complicated forward guidance on their policies, warning that doing so could disrupt financial markets and prove to be counter-productive.

He also said that exiting from the current ultra-easy monetary policy may be more difficult than when the BOJ last ended its quantitative easing in 2006, because the bank now loads up on more long-term government debt and risky assets.

"The day of constructive ambiguity is over and transparency is extremely important to avoid unnecessary shock to the economy," Kuroda told a seminar at the University of Tokyo.

But he added that offering complicated messages to markets, which are diverse and consist of various participants, may have unintended consequences.

"Too complicated forward guidance, or too complicated communication, could be less efficient and sometimes even disruptive," he said on Saturday.

Many central banks, including the U.S. Federal Reserve and the Bank of England, have resorted to "forward guidance" in lowering long-term interest rates, which is to offer guidance on how long they will maintain their ultra-loose policies.

But the Fed was criticized as misguiding markets when it held off on tapering its massive stimulus, despite offering signals in May that it may do so in coming months.

Kuroda has insisted on keeping the BOJ's message simple, which is to maintain its massive stimulus until 2 percent inflation is achieved, and has refrained from offering specific information on what will trigger an exit from that policy.   Continued...

 
Bank of Japan (BOJ) Governor Haruhiko Kuroda listens to a reporter's question during a news conference at the BOJ headquarters in Tokyo November 21, 2013. REUTERS/Issei Kato