BOJ Policy Stance Confuses Investors, Ex-Board Member Says

BOJ at Odds With Itself Confuses Investors
A pedestrian walks past the Bank of Japan headquarters in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

A former Bank of Japan board member said that investors are confused because the central bank is making decisions that seem at odds with the stance of its own policy makers.

“The BOJ is probably implementing policies it doesn’t want to,” said Atsushi Mizuno, 52, managing director of Credit Suisse AG in Tokyo and a member of the policy board from 2004 to 2009. The central bank “announced measures that it doesn’t necessarily think are effective” for ending deflation by expanding asset sales and setting a 1 percent inflation goal, he said in an interview on April 16.

Goldman Sachs Group Inc. economist Naohiko Baba previously said that those moves in February were “out of character” for central bank Governor Masaaki Shirakawa, while JPMorgan Chase & Co. described them as a “game changer” that marked a new approach by the monetary authority. Political pressure for expanding easing was highlighted by lawmakers this month rejecting a government nominee for the BOJ’s board who some saw as lacking enthusiasm for bolder measures.

Such pressure may have been a factor in February’s moves, said Mizuno, who added that there is “no consistency” between the BOJ’s stance and comments by Shirakawa. “The market is confused by the BOJ’s communication,” he said.

‘Not Well Communicated’

The central bank chief has warned of negative effects for the world economy from loose monetary policies and said last month that central banks must consider risks associated with low rates, such as inefficient allocation of resources.

Deputy Governor Kiyohiko Nishimura said today that until the February meeting “the bank’s policy stance was not well communicated.” The BOJ introduced the inflation goal and “decisively increased’” the asset-purchase program to make its intentions clear, Nishimura said in a speech in Okayama.

The monetary authority is “committed to implementing additional easing measures, if deemed necessary” and financial markets increasingly understand the bank’s determination to overcome inflation, the policy maker said.

BOJ policy makers unanimously agreed this month to hold off from additional easing after adding 10 trillion yen ($122 billion) to the asset-purchase program in February. The central bank’s key rate remains between zero and 0.1 percent. Mizuno sees additional easing at an April 27 meeting.

Yen’s Gains

A narrowing yield spread on Japanese and U.S. notes means easing may have a limited effect on the nation’s currency, which traded at 81.34 per dollar as of 1:20 p.m. in Tokyo.

The extra yield investors demand to hold two-year Treasuries instead of Japan’s debt was 15 basis points on April 13, the least since Feb. 15 and boosting the relative allure of yen-based assets. The yield spread between Germany and Japan inverted last week for the first time on record.

“Unless there’s a big surprise from the BOJ later this month, any additional easing would have limited effect on the yen,” said Yuji Saito, director of the foreign-exchange department in Tokyo at Credit Agricole SA. “There’s almost no room for Japan’s two-year yields to fall.”

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