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After the “bazooka”, the Bank of Japan dismantles its radical chief’s work

File Photo: Bank of Japan President Haruhiko Kuroda attended a press conference held in Tokyo on January 21, 2020. REUTERS / Kim Kyung-Hoon / File Photo

September 12, 2021

Reika Kihara

Tokyo (Reuters) – A long-standing shock and awe-inspiring Bank of Japan, a controversy that quietly recedes the radical policies introduced by bold governor Haruhiko Kuroda and blurs the line between central banks and politics. We are pioneering new measures to bring about.

The rewinding of Japan’s complex policies is being driven by Vice President Masayoshi Amamiya, insiders say. Its term ends in 2023.

Amemiya and his chief lieutenant, Shinichi Uchida, made Kuroda’s complex policy framework (a product of many years of unsuccessful attempts to revive stagnant consumer prices) easier to handle and ultimately The economy is also suffering from a pandemic that has been working behind the scenes to bring Japan back to normal interest rate settings.

The BOJ’s decline in financial options is pushing banks into schemes adjacent to industrial policy, such as those designed by two ambitious technocrats to promote banking sector consolidation and green finance instead. It means that.

Although not officially reported, the most decisive and up-to-date move in policy direction is the March meeting, which announced that the Bank of Japan is no longer committed to a fixed program of risky asset purchases, and finance. It was an unobtrusive sign of delaying support.

“The March move laid the foundation for the final policy normalization,” said Kuroda’s close associates, who have knowledge of central bank policy deliberations.

An explanation of this event before and after the March meeting was given to more than 20 incumbent and former central bank and government officials, ruling and opposition legislators and scholars with direct or indirect knowledge of monetary policy decisions. Based on an interview with. The Bank of Japan declined to comment on the story and declined Reuters’ request for an interview with Amemiya and Uchida.

“Current stimulus cannot last forever and must be rolled back at some point,” said a former BOJ policymaker involved in the March decision. “It’s always in the heart of the Career Central Bunker.”

Officially, the March change will extend the life of the stimulus policy backed by Kuroda, who was once seen as a bold visionary who could shock the economy from deflation in his “bazooka” asset purchase program. Was aimed at.

But insiders say there was another motive: paving the way for the final withdrawal from these very policies.

Although that intention was hidden from the market, it is a symbol of Kuroda’s bold experiment based on textbook theory that strong financial behavior and communication can affect public price expectations and boost inflation. Will mark the end.

Hirohide Yamaguchi, the former Deputy Governor of the Bank of Japan, said, “It seems that the Bank of Japan is always trying to prove itself by doing new things.” “It has become clear that the Bank of Japan cannot influence or shape the way people think like jelly.”

The decision of Prime Minister Yoshihide Suga to resign this month could question the BOJ’s communications, ultra-loose policies, and the hot issues of Kuroda’s ultimate successor for Japan’s next leader.

Formerly regarded as a definitive symbol of monetary easing, the Bank of Japan’s recent forecasts fail to reach the bank’s elusive 2% target well beyond its term of inflation ending in 2023. It seems that they are lagging behind in anticipation.

He also acknowledged the need to address the burden of ultra-low interest rates on financial institutions.

Only half of the six speeches so far this year have been about monetary policy. In his first year as governor in 2013, all but two of his 15 speeches focused on monetary policy.

Kuroda insists on a 2% reduction in inflation and writes memoirs on a variety of topics, from meeting various foreign policy makers to pizzas he ate while on a business trip to Naples.

“He probably enjoys reading books on philosophy rather than chairing the board,” he joked about the book-loving governor.

Egg descrambling

Plans for a final withdrawal from the Kuroda era stimulus package continued to be tight and were not part of the bank’s official communication.

However, withdrawals have been gradual since 2016, when the Bank of Japan replaced its commitment to raise funds at a constant pace with a policy of controlling interest rates.

“Mr. The Bank of Japan, which drafted a number of monetary easing policies, has been coordinating a more collaborative rollback of the stimulus itself created by Mr. Kuroda since early last year.

Details will be resolved by Uchida, who, like Amemiya, was groomed to raise the rank of the Bank of Japan, armed with “rich ideas and a very keen heart,” and worked with or under him. People say.

The challenge was to mitigate the rising costs of long-term easing by financial institutions without giving the market the impression that the Bank of Japan is heading for a sharp break from easy policy.

Amemiya took the initiative in the controversial scheme announced in November. Under this scheme, the Bank of Japan pays 0.1% interest to local lenders who boost or consolidate profits.

Concerns among policymakers that chronically low interest rates could destabilize the banking sector, in favor of local banks’ complaints that the BOJ’s negative interest rate policy has already narrowed its thin margins. Reflected.

“This is essentially a scheme to compensate local banks for the negative interest rate hit,” said one source.

By mid-2020, bureaucrats will also discuss how to deal with their biggest headache, the huge holdings of exchange-traded funds (ETFs) that have exposed their balance sheets to potential losses from market volatility. was doing.

For years, the government relied on the Bank of Japan to set the lowest prices on the Japanese stock market, discouraging central banks from waiving their pledge to buy ETFs at a constant pace.

But as stock prices continued to rise, the political mood changed. Lawmakers have begun to complain about the distortions that the BOJ’s huge presence is causing in the stock market.

Last year, after increasing purchases to alleviate the pandemic market turmoil, the Bank of Japan began to curtail purchases and noticed that the market was tapering.

This convinced the Bank of Japan that banks could end their purchases without disrupting the market, as long as they were guaranteed to intervene in times of crisis.

“The Bank of Japan has made a completely correct decision to move away from easy policy, starting with a gradual decline in ETFs,” said a former trade minister and opposition who was once a supporter of aggressive monetary easing voices. Said the heavyweight Banri Kaieda.

blurred lines

The next step is to raise interest rates, the first since 2007 and to wipe out excess cash from the market.

The March move laid the foundation for that step. However, as inflation is restrained, rate hikes can take years and are likely to be left to Kuroda’s successor, sources said.

“If the Bank of Japan is lucky, the debate (on rate hikes) could start around 2023,” Eiji Maeda, a former BOJ executive, told Reuters.

“But this is not a normalization of policy. Maeda, who was involved in drafting the current stimulus package, said,” It’s just a shift from anomalous stimulus to more sustainable monetary easing. ” ..

It will be even more difficult to sell the BOJ’s huge ETF holdings. Bureaucrats have brainstormed ideas internally, but there is no consensus on when and how this can be done, sources say.

Indeed, policymakers inside and outside the Bank of Japan say that some stimulus is still needed to support the struggling economy, and that it is unlikely that it will change if Suga resigns.

It would leave the central bank in a waiting pattern and use unconventional initiatives outside the financial toolbox to revitalize the economy, even if global peers escape the stimulus of crisis mode. prize.

Among them is a scheme announced in July to provide cheap funding to banks that finance activities aimed at combating climate change.

The plan is in line with Kan’s commitment to make Japan carbon-neutral by 2050, a sign that the Bank of Japan is coordinating its policy with government priorities and controversy.

Those who worked with him say such proposals are typical of Amemiya, who knows in which direction the political wind is blowing and can flexibly adapt to changes in public opinion.

“We should avoid intervening in asset allocation as much as possible, but there is no simple and lasting line to determine if it is acceptable,” Amemiya said in July.

“As the economy becomes more sophisticated … economic policy requirements become more complex and difficult.”

Such an advance into quasi-government policy highlights the BOJ’s current lack of conventional policy ammunition and brings it into politically unknown waters.

Miyako Suda, a former BOJ board member, said many of the banks’ new programs are less autonomous in when to withdraw stimuli than traditional policy tools.

“It’s no longer a decision that only the Bank of Japan can make,” she said. “When the government and the Bank of Japan are working side by side in the same direction, things go well. The problem is when the two parts are separated.”

(Report by Reika Kihara, Tetsushi Kajimoto, Takaya Yamaguchi, Kentaro Kaneko, Kentaro Sugiyama, Additional report by Takahiko Wada, edited by Sam Holmes)



After the “bazooka”, the Bank of Japan dismantles its radical chief’s work

Source link After the “bazooka”, the Bank of Japan dismantles its radical chief’s work

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