BOJ’s Incoming Deputy Chief Dismisses Immediate Need for Policy Adjustments
B OJ’s Incoming Deputy Chief Dismisses Immediate Need for Policy Adjustments
Incoming Bank of Japan (BOJ) Deputy Governor Shinichi Uchida has dismissed the possibility of any immediate modification to the ultra-loose monetary policy in Japan. Uchida has suggested that any review of the policy framework would take around a year and that the bank should not change its easy policy to address the side effects of the prolonged stimulus. The idea behind the approach is to sustain stimulation rather than modify it to mitigate the costs.
Inflation exceeding its 2% target has led many to speculate that BOJ will overhaul its yield curve control policy when Kazuo Ueda takes on the role of Governor. However, Ueda has already suggested that if the central bank were to undergo a review of its policy framework, it would spend plenty of time doing so.
BOJ board member Naoki Tamura has called for a review of the policy in light of criticism that the prolonged low rates have been hurting financial institutions’ margins and distorting the shape of the yield curve. However, it is unlikely that the BOJ will modify the policy before Governor Ueda takes over.
Key Takeaway: Downplaying the need for immediate change in ultra-loose monetary policy in Japan, BOJ believes that any substantial policy amendment will take up to a year. The ongoing policy in Japan aims to mitigate the side effects while sustaining the required stimulus. Incoming Governor Ueda appeared to prefer plenty of time in the policy review.
1. The BOJ commenced its easy monetary policies in April 2013 to heighten the inflation rate. Since then, the bank has implemented stimulus policies such as yield curve control and negative interest rates as part of its quantitative and qualitative easing (QQE).
2. The Japanese yield curve is often considered a barometer of the Bank of Japan’s monetary policies. The spread between short- and long-term rates has tightened in recent months. Hence, the central bank had to defend its 0.5% cap set for the 10-year bond yield implemented under YCC.
3. Achieving inflation expectations for BOJ remains a tough challenge, as the bank has projected 2% inflation since April 2013 but failing to establish a sustained attempt to reach its target. BOJ believes that inflation expectations seem to be anchored below 2%.
In conclusion, BOJ, under the premise of prioritizing sustaining monetary easing, is opposed to immediate changes to Japan’s ultra-loose monetary policy, suggesting that any policy review would take a year. BOJ would instead opt for ways to mitigate the risks caused by prolonged stimulus rather than policy changes. Governor Ueda prefers to spend a lot of time if a substantial policy review is conducted, indicating that a policy review is likely to happen under Ueda’s leadership.