FACTBOX-Kuroda's shock therapy leaves Bank of Japan with mixed legacy

Kuroda leaves the BOJ as YCC faces its biggest test, with rising domestic inflation putting upward pressure on long-term interest rates.

Haruhiko Kuroda leaves a mixed legacy after 10 years running the Bank of Japan (BOJ), achieving price rises after decades of deflation and anaemic growth but without engineering durable expansion fuelled by domestic demand.

Below are key episodes during Kuroda's tenure, which ends in April when he will be succeeded by academic Kazuo Ueda. DEPLOYING THE 'BAZOOKA'

Kuroda was hand-picked by deceased former Prime Minister Shinzo Abe in 2013 to pull Japan out of deflation with bolder monetary easing as part of his "Abenomics" stimulus policies. A man of logic and pragmatism, the former top Japanese currency diplomat was a firm believer that communication, when done correctly, becomes a highly effective tool in enhancing the effects of monetary policy.

Soon after taking the helm, Kuroda jolted the conservative institution into deploying a "bazooka" massive asset-buying programme to show his determination to achieve the BOJ's 2% inflation target in roughly two years. Kuroda's approach was a stark contrast to that of his predecessor Masaaki Shirakawa, who warned that monetary policy alone cannot change public perception, and that central banks should not veer too much into uncharted territory.

TURNING POINT Kuroda's bazooka was initially praised for boosting stocks, brightening corporate sentiment and reversing a debilitating yen spike that had hurt the export-reliant economy.

But the positive effect began to fade as soon as 2014, when plunging oil prices and a sales tax hike derailed Japan's turn toward growth and inflation. The BOJ expanded asset purchases in October 2014, which did little to fire up inflation. As its huge bond buying faced limits, the BOJ switched in 2016 to a policy that sought to control interest rates along the yield curve.

The shift to yield curve control (YCC) was the start of a gradual dismantling of Kuroda's radical experiment. PHASING OUT THE BAZOOKA

By the time Kuroda was re-appointed in 2018 for a rare second, five-year term, it was clear that his shock therapy failed to jolt the public out of a deflationary mindset - and that a long-term approach was needed. Most of Kuroda's second term was devoted to extending the lifespan of YCC, such as by letting longer-term yields move more freely and compensating banks for the pain from ultra-low rates, some of which were below zero.

The BOJ also began to draw heat from commercial banks for crushing margins and from investors for distorting pricing and draining market liquidity. Even Abe began to distance himself from the BOJ's elusive 2% target, saying Abenomics' biggest success had been to create jobs. In April 2018, the BOJ dropped any reference to a timeframe for when it expected to achieve its 2% inflation target.

Kuroda began blaming Japan's stubbornly deflationary mindset for delaying the achievement of his inflation target. END GAME

As the cost of prolonged easing accumulated, the BOJ began to pave the way for an eventual retreat from Kuroda's policies. The most decisive step since the introduction of YCC came in March 2021, when the BOJ announced it would no longer commit to buying risky assets at a set pace.

In December 2022, the BOJ shocked markets by widening the band around its 10-year yield target and allowing long-term rates to rise more - a sign to investors that YCC's days were numbered. Kuroda leaves the BOJ as YCC faces its biggest test, with rising domestic inflation putting upward pressure on long-term interest rates.