A man walks in front of the headquarters of the Bank of Japan, in Tokyo, on Jan. 18.ISSEI KATO
The Bank of Japan may conduct a comprehensive review of the impact of the monetary easing steps it has taken over the longer term, an idea recently flagged by its new governor Kazuo Ueda, three sources familiar with its thinking said.
But there is uncertainty on how soon, and in what format, the central bank could launch such a review, which will be a topic of discussion at upcoming policy meetings, they said.
“While the timing is uncertain, it’s an issue that will likely be discussed,” one of the sources said, a view echoed by two other sources. The sources requested anonymity as they were not authorized to speak publicly.
Any review likely won’t have immediate policy implications, and instead focus on structural factors such as lessons drawn from the BOJ’s long battle with deflation, the sources said.
The Sankei newspaper reported on Sunday the BOJ may start discussions on the review as soon as its two-day meeting that ends on Friday, which will the first one to be chaired by Ueda.
“If the BOJ were to start discussions in April, the timing would be a surprise,” said Toru Suehiro, chief economist at Daiwa Securities.
“But it won’t change the BOJ’s stance of patiently maintaining ultra-loose monetary policy, with an eye on its side effects,” he said.
At his inaugural news conference on April 10, Ueda said it could be a good idea to conduct a comprehensive review of the BOJ’s monetary policy dating back to its prolonged battle with deflation decades ago, though adding it was something he needed to discuss with the nine-member board in reaching a conclusion.
BOJ Deputy Governor Shinichi Uchida, before assuming that role in March, had also said the central bank could learn from the experience of U.S. and European counterparts’ year-long review of their monetary policies.
Among others in the board, former commercial bank executive Naoki Tamura has called for a review of the BOJ’s policy, including the side-effects of prolonged easing.
At this week’s meeting, the BOJ is expected to maintain its targets set under yield curve control (YCC), which guides short-term rates at –0.1 per cent and the 10-year bond yield around zero.
The BOJ conducted an examination of its policy framework twice during former Governor Haruhiko Kuroda’s term. The first time was in 2016, when it introduced YCC in a shift away from a policy targeting the pace of money printing.
The second was in 2021, when the BOJ took steps to address the side-effects of YCC such as allowing long-term yields to move more flexibly around its target.
Convincing markets another review won’t have near-term policy implications could prove challenging, with many investors betting that Ueda will soon steer the BOJ away from the radical stimulus program of his predecessor.
“If Ueda indeed moves swiftly toward conducting a review, that may reflect the BOJ’s reluctance to continue with the current massive stimulus,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.
“Very few market participants will buy the idea that the review would be aimed just as a record of the past.”