According to reporting by Bloomberg, barriers for action from the Bank of Japan (BoJ) are still widely dispersed, and traders eager for adjustments from Japan’s central bank may be jumping the gun.
Key quotes
“Bank of Japan watchers can rest easy and enjoy a late summer holiday because it won’t be making another policy tweak any time soon, according to a former BOJ official.
“It will take time for the BOJ’s next policy step given the need for a consensus from the nine board members,” said Takashi Kozu, who held a wide-range of positions at the central bank and was a member of the Basel Committee on Banking Supervision from 2006 to 2010. “The BOJ has reached a limit to the ambiguous rhetoric used in July, which can’t be repeated anymore. The next move will have to be explained based on fundamentals.”
That will prove to be challenging, Kozu, who is now president of the Ricoh Institute of Sustainability and Business in Tokyo, said in a Sept. 5 interview. He sees the domestic and global economy turning a corner and entering a phase of lower growth in the near future.
The BOJ’s policy adjustments in July were the first in two years to its massive monetary stimulus program, setting it up for the longer haul while taking steps to reduce side effects. Inflation remains less than half way to its goal after more than five years of extraordinary stimulus.
“What most worries the BOJ now may be whether it can survive the next cyclical trend without doing anything additional, when Japan faces the need to adopt economic policies to strengthen growth next year,” he said. “There is a risk the BOJ is left with no policy options.”
Efforts to steer monetary policy toward normalization will stall as reliance on external demand makes the economy vulnerable to a global downturn, he said. Fear of yen appreciation will also prove a hurdle, he added.
The central bank said it would allow Japan’s benchmark 10-year yield to trade as much as 0.2 percent above or below its zero percent target, from 0.1 percent previously, as part of its July tweaks.
“Major central banks probably feel the need to normalize and the BOJ did the best it practically could this time to reflect that, even if it was insufficient,” Kozu said. “The BOJ will pause for a while, and the risk of side effects will accumulate.”
Share
