BOJ Is Said to Mull How to Communicate Eventual Stimulus Exit

  • Any rollback of policy is a long way off with inflation weak
  • Yet there is growing pressure for the BOJ talk about it more

The Bank of Japan is re-calibrating its communications to acknowledge that it is thinking about how to handle a future exit from monetary stimulus, without giving the impression that this is on the agenda anytime soon, according to people with knowledge of discussions at the central bank.

With inflation still far below target, the BOJ is contending with increasing debate about exit in markets, the media and among some lawmakers. Officials realize it’s unrealistic and unconstructive to try to remain silent on the issue and the BOJ now wants to make it known that it’s conducting simulations internally on how an exit could play out, said the people, who asked not to be identified.

Governor Haruhiko Kuroda, who has been called before parliament 18 times this year, was grilled by lawmakers last month on his thinking about post-stimulus policy. Kuroda responded by saying he would carefully consider external communications, while also acknowledging for the first time that the annual pace of an increase in bond holdings had declined to around 60 trillion yen ($546 billion), well below a guideline of about 80 trillion yen.

With the BOJ’s balance sheet approaching the size of the 537-trillion-yen economy and set to keep growing, pressure is increasing on the central bank to provide more details on its thinking. This is all the more so given that policy makers at the Federal Reserve are talking about options for how to run off their balance sheet.

Read more: The BOJ has fallen behind its global peers.

The yen strengthened sharply on the news and traded at 109.50 versus the dollar at 2:54 p.m. in Tokyo. The Japanese currency has depreciated about 15 percent since Kuroda launched his monetary program in April 2013.

In a sign of a more communicative style, Deputy Governor Kikuo Iwata said Thursday in parliament that the BOJ recognizes the importance of providing a clear explanation of the effects of stimulus, including on its balance sheet. While the BOJ is doing simulations, Iwata said it may be difficult to release these now.

One section of Japan’s ruling Liberal Democratic Party in April submitted a letter to the government calling for more discussion of post-easing monetary policy. 

Taro Kono, a former minister and seven-term lawmaker who chairs the party’s Administrative Reform Promotion Headquarters, said in an interview in April: "We’re asking for communication."

Frayed nerves: Some LDP members are worried by the balance sheet.

Former Federal Reserve Chairman Ben Bernanke, who has had his own challenges in getting his message understood by the market, has famously said monetary policy is 98 percent talk and 2 percent action. 

Kuroda and the BOJ board are due to meet to consider policy on June 15-16. Economists who follow the BOJ don’t expect any change to policy at the gathering.

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