The SVB crisis may prompt the Bank of Japan to delay policy changes, says a former board member

The Silicon Valley Bank (SVB) crisis, which began with the collapse of a US hedge fund and rippled through global markets, may have repercussions beyond the financial sector. According to Takahide Kiuchi, a former member of the Bank of Japan’s policy board, the central bank may delay any changes to its monetary policy in response to the turmoil. Kiuchi, who now works as an economist at Nomura Research Institute, told CNBC that the Bank of Japan’s ultra-dovish stance could be postponed by up to a year.

The implications of this delay are significant. Kiuchi had previously expected the incoming governor, Kazuo Ueda, to accelerate the Bank of Japan’s normalization of monetary policy, which would have involved widening the current yield curve control policy and removing negative interest rates. But now, Kiuchi says, “the new governor’s monetary policy could be affected by the financial market conditions if the current instability of the financial markets continues.” This means that the Bank of Japan, which has been trying to stimulate inflation and stabilize the economy, may be forced to keep its existing policies in place for longer thd.

One factor that will influence the Bank of Japan’s decisions is the Federal Reserve’s next moves. Kiuchi notes that “the next steps from the Fed would remain an important factor” for Japan’s central bank. If the US economy slows significantly and the Fed cuts rates, this could further complicate Japan’s normalization plans. Kiuchi says that the possible timing for when the Bank of Japan will end its negative interest rate policy is now in the second half of next year, but this could change depending on external factors.

In the short term, Kiuchi still expects the Bank of Japan to widen its tolerance range for its yield curve, which he believes could happen as early as June. However, he adds that “public sentiment is also an important indicator for the Bank of Japan” and that the central bank would eventually aim for “flexibility” in its monetary policy. Kiuchi says that the Bank of Japan’s inflexibility caused a sharp yen depreciation last year, which was unpopular with the public. This is why the new governor may need to focus on creating policies more responsive to changing conditions and public opinion.

Related Facts:

– The Silicon Valley Bank crisis began when a US hedge fund called Archegos Capital Management defaulted on margin calls to several banks, including Credit Suisse and Nomura.
– This led to billions of dollars in losses for the banks and triggered a sell-off in global stock markets.
– The Bank of Japan has pursued an ultra-easy monetary policy since 2013 to raise inflation and stimulate the economy.

Key Takeaway:

The SVB crisis highlights the interconnectedness of global financial markets and the potential implications of one firm’s failure. For the Bank of Japan, the crisis may mean a delay in its plans to normalize monetary policy, which could have consequences for Japan’s economy and its citizens. In a world where uncertainty is the norm, flexibility, and responsiveness may be key virtues for central banks and their leaders.

Conclusion:

Takahide Kiuchi’s warning that the SVB crisis could prompt the Bank of Japan to delay policy changes is a reminder of the fragility of the global financial system. While the Bank of Japan has been successful in some respects in stabilizing Japan’s economy, it may need to adjust its policies in response to changing circumstances. The challenge for the bank’s leadership will be balancing the need for stability with the need for flexibility and communicating its decisions clearly and effectively to the public.