Former BOJ Board Member Calls for Change in Communication Approach
Bank of Japan Governor Kazuo Ueda’s communication style is causing confusion in the markets, with investors mistakenly perceiving an imminent exit from ultra-loose monetary policy, warns former BOJ board member Takako Masai. In just under a year at his post, Ueda has twice caught markets off guard with his comments on policy outlook, including a recent parliamentary speech where he detailed potential actions after ending the negative interest rate policy.
These remarks led to a surge in bond yields and the value of the yen, as market participants began pricing in the possibility of the BOJ ending negative interest rates as early as December. However, the central bank made no changes to its ultra-loose policy this month, adhering to its dovish guidance.
Masai expresses concerns that Ueda’s hawkish stance in parliament contradicts the views of other board members, who have warned against premature discussions about an exit strategy. This discrepancy suggests that the governor may not accurately represent the board’s consensus in public. Masai believes that the confusing sequence of the BOJ’s recent communications could limit the central bank’s options regarding the timing of its exit strategy, as it may lead traders to incorrectly anticipate imminent action.
Challenges to Achieving Inflation Target and Wage Growth
With inflation surpassing the BOJ’s 2% target for over a year, many players in the market anticipate the central bank lifting short-term rates out of negative territory in the coming year, and some even expect action as early as January. However, Masai emphasizes that in a country plagued by decades of stagnant price and wage growth, it will take time to establish a positive wage-inflation cycle and ensure its sustainability.
Masai also highlights that prematurely ending the ultra-loose policy would contradict the government’s commitment to achieving long-term wage growth and preventing a return to deflation. Despite experiencing positive economic indicators, the Japanese government has yet to officially declare that the nation has overcome deflationary challenges.
Considering the dovish comments made by each BOJ board member and the government’s assessment of the economy, Masai suggests that the central bank is unlikely to change policy as quickly as the markets expect, possibly not until after January or April. The BOJ convenes policy-setting meetings eight times annually.
By Leika Kihara and Takahiko Wada
TOKYO (Reuters)