Photographer: Kiyoshi Ota/Bloomberg

Japan’s Central Bank Tweaks Message as Dissenter Calls for More Easing

Updated on
  • Kuroda speech included new language on risks of more stimulus
  • Changes are said to have been wrongly interpreted as exit hint

A new dissenter on the Bank of Japan board calling for more stimulus has prompted the BOJ to adjust its communications to flag risks of additional easing, according to people familiar with the central bank’s discussions.

The change in messaging could explain why some investors wrongly interpreted Governor Haruhiko Kuroda’s recent comments on the "reversal rate" theory as a hint about an earlier policy exit, said the people, who asked not to be named because the discussions are private.

The calls for further easing by Goushi Kataoka, a reflationist who joined the board in July, raised the need to explain the reasons for not adding stimulus despite the price target remaining elusive, the people said. Kataoka became the first dissenter to call for more aggressive stimulus than the rest of the board since Kuroda took the helm in 2013.

Read more: Kuroda Gives Japan’s Long-Suffering Bond Traders 2018 Hope

The yen weakened 0.2 percent against the U.S. dollar immediately after Bloomberg reported the adjustment to the BOJ’s messaging. It later retraced the move and traded at 112.18 versus the dollar at 3:15 p.m. in Tokyo.

Many BOJ officials see the current yield curve as best for Japan’s economy for now, given that inflationary pressures are gradually rising while low yields are not disrupting the financial system, the people said. The BOJ has consistently said it will continue its powerful easing program because its 2 percent inflation target remains distant, they noted.

Former board members Takahide Kiuchi and Takehiro Sato, whose terms ended in July, consistently voted against board decisions, but they argued that the stimulus was excessive.

Kuroda’s comments on the "reversal rate," first mentioned by name in a mid-November speech, were meant to reaffirm the risks of additional easing, while making clear that those risks had not been realized, according to the people.

Some economists said Kuroda’s speech acknowledged the negative side effects of current BOJ policy, giving the central bank room to move toward an earlier-than-expected exit.

BOJ officials have been puzzled by the attention Kuroda’s comments received, the people said.

Though it was the first time Kuroda used the term "reversal rate" publicly, the BOJ had previously and repeatedly discussed the same basic idea, which was taken into account when it introduced its yield curve control program in September last year, they said.

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