Bank Japan has chosen path of ultralight policy
2022.12.28 03:36
Bank Japan has chosen path of ultralight policy
Budrigannews.com – Takatoshi Ito, a Columbia University professor who is close to BOJ Governor Haruhiko Kuroda, wrote in a column on Tuesday that the Bank of Japan’s decision to raise its bond-yield ceiling could be the first step toward normalizing ultra-easy policy.
This month, the central bank shocked the market by raising the implicit cap it had set for its 10-year bond yield target from 0.25 percent to 0.50 percent. The move was made to get rid of market distortions caused by its yield curve control (YCC) policy.
Kuroda said then that the move was not an introduction to an exit from super free strategy, since ongoing cost rises implied Japan’s expansion changed, genuine loan fee had been declining.
“On this technical point, Kuroda is correct. “However, the adjustment to the YCC could still be the first step toward monetary-policy normalization,” Ito stated in the column that was published on the Project Syndicate website.
According to Ito, who some analysts see as a potential candidate for the BOJ governor position when Kuroda’s term ends in April, there was good reason to believe that the BOJ’s projection that inflation will slow back below its target of 2% next year could prove to be incorrect.
Even after accounting for the impact of higher costs for energy and food, Japan’s annual consumer inflation rate reached 2.8% in November. Ito said that was a sign that it could stay above 2 percent next year even if food and energy costs stopped going up.
He stated that the annual pay negotiations for next year were also likely to result in significant wage increases. This was partly done to compensate employees for the rise in inflation and would increase households’ spending power and cause price increases driven by increased demand.
“That would be an optimal introductory condition for the BOJ to begin hitting its expansion focus on a more supportable premise,” Ito said. ” Japan’s decade-long ultra-easy monetary policy may yet see a happy conclusion in the new year,” he added.
Since working together at Japan’s finance ministry in 1999-2001, Ito and Kuroda have been close. They lobbied hard for the BOJ to adopt a 2% inflation target to end deflation. The BOJ did as such in mid 2013 and conveyed a monstrous upgrade program when Kuroda became lead representative months after the fact.
However, Kuroda’s “bazooka” asset-buying program failed to spur inflation, necessitating the BOJ’s adoption of YCC in an extended effort to reach its price goal.
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Kuroda has ruled out the possibility of a near-term rate hike on the grounds that wages must rise more for Japan to sustainably reach 2% inflation, despite the fact that rising prices for raw materials have pushed inflation above 2% in recent months.
