The BOJ’s dovish isolation draws public heat ahead of changes in leadership

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Tokyo — Market distortions due to the depreciation of the yen and current currency settings are increasing the Bank of Japan’s political enthusiasm as it becomes increasingly isolated in the hawkish world of central banks.

Opposition lawmakers have set Prime Minister Fumio Kishida as a hotspot ahead of the House of Councilors election scheduled for July, and regularly burn the Bank of Japan on the grounds of currency depreciation and boosting living expenses.

Fumio Kishida defends the Bank of Japan’s policies as needed to support a sustained economic downturn, but new scrutiny of banks could color the government’s debate over who will take over Haruhiko Kuroda. There is sex.

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The possibility of maintaining ultra-low interest rates may be a high feature in the process of selecting the next leader of the central bank as the weak yen and the global shift to monetary tightening begin to reshape Japan’s policy debate. Hmm.

“The Bank of Japan has kept interest rates at zero since 1990. In addition to this, rising raw material costs. It’s time for the Bank of Japan to change its weak yen policy.” Opposition lawmaker Akio Fukuda told Vice President Masayoshi Amamiya at parliament on Tuesday.

The election of the governor is usually watched carefully, but the current economic challenges and the growing attention to the BOJ’s unconventional monetary policy mean that it is now receiving more attention than usual.

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Former BOJ Vice President Hiroshi Nakaso, who will be the next president, said that former Prime Minister Shinzo Abe’s “Abenomics” policy was overly dependent on radical monetary stimulus measures.

Interest rate hikes will not come soon, but changes in public opinion will require the Bank of Japan to plan for yield caps that need to be adjusted.

“If the yen continues to depreciate, we will be dissatisfied with the rise in prices. There is also a feasibility problem for the BOJ to buy too many bonds,” said a former BOJ executive who is currently the chief economist at Ichiyoshi Securities. Nobuyasu Yasuda said.

“If the yen depreciates too much, the Bank of Japan may be able to fine-tune yield curve controls later this year.”

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Communication challenges

The yen has fallen to its lowest level in 20 years due to the prospect of aggressive rate hikes in the United States. This is in contrast to the Bank of Japan’s determination to maintain short-term interest rates at -0.1% and 10-year yields at around 0% under Yield Curve Control (YCC). policy.

Kuroda justified maintaining low interest rates by emphasizing that Japan’s inflation rate, which appears to have achieved its 2% target this year, remains much lower than in Western countries.

However, the difficulty of advocating low interest rates could be exacerbated by the signs that the European Central Bank will end negative interest rates this year for a long time as a companion to the world’s central banks.

The people are feeling a pinch. According to a survey by the Bank of Japan last month, the percentage of households expecting prices to rise in a year has reached the highest level in 14 years and feels worse than it was three months ago. Many households answered that.

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According to a Reuters survey, more than 60% of Japanese companies want the Bank of Japan to end this year’s ultra-easy policy due to the pain of the weak yen.

Investors have stepped up efforts to uphold the BOJ’s 10-year interest rate cap by rolling back years of work to distort the yield curve and bring the dormant market to life with its immense presence. I also lit the fire.

According to some analysts, the gap between public opinion about the depreciation of the yen and the Bank of Japan’s assertion of ultra-easy policy maintenance could undermine the credibility of banks and raise the challenge of communicating policy intent.

Naomi Rokka, senior market economist at Mitsubishi UFJ Morgan Stanley Securities, said, “There is growing public awareness that the Bank of Japan is blaming the depreciation of the yen and the increased burden on households.”

“If the BOJ’s remarks do not get the sympathy of the market and the public, monetary policy will not work well,” he said.

(Report by Reika Kihara, edited by Sam Holmes)