BOJ’s new chief reassures markets with commitment to current policies
Analysis: New BOJ Head’s Message to World – We’re Staying the Course – for Now
Japan’s new central bank Governor Kazuo Ueda has assured policymakers at the global finance meetings in Washington that the country will stay true to its current monetary policy. Since taking office last week, Ueda has hinted that the massive stimulus program that his predecessor, Haruhiko Kuroda, championed will gradually be phased out. However, discussing how and when to shift away from an ultra-loose policy will take time, reassuring the world that change won’t happen quickly.
Ueda reiterated that Japan’s inflation rate, currently at 3%, will slow back below the BOJ’s 2% target later this year due to falling import costs, explaining his decision to keep Japan’s monetary policy ultra-loose for the time being. However, his future decisions will depend on how the situation continues to develop over time, given the instability of the global economy. Furthermore, speculation is rife that Ueda will move towards tweaking YCC (yield curve control) this year as the cost of prolonged easing increases and inflation exceeds the BOJ’s target.
Related Facts
- The BOJ’s YCC policy guides short-term rates at minus 0.1%, and the 10-year Japan government bond yields around zero with an implicit cap of 0.5%.
- The 10-year yield is currently under the cap at 0.47%
- However, on numerous occasions earlier this year, traders drove it above 0.5%, putting pressure on the BOJ to defend the mark and maintain market stability.
- Ueda’s remarks leave room for changes to YCC, which has drawn criticism for distorting the shape of the JGB yield curve and crushing financial institutions’ margins.
Key Takeaway
Given the uncertain state of the world economy, the incoming governor’s remarks provide some reassurance for global policymakers. However, Ueda’s cautious approach broadly reflects the difficulty of judging how events will unfold; hence, any moves toward changing monetary policy will be made gradually and meticulously to avoid market instability.
Conclusion
Ueda’s remarks convey that despite his predecessor’s pro-stimulus agenda, he intends to proceed cautiously due to the unstable global economy. He has hinted that the BOJ will eventually phase out specific monetary policies; however, this would be done gradually to avoid market instability, reassuring the world that Japan will stay the course for now.
