Photographer: Kiyoshi Ota/Bloomberg
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BOJ Could Adjust Rates, But Not Yet, Says New Deputy Amamiya

  • Deputy Governors Amamiya, Wakatabe began 5-year terms Tuesday
  • Kuroda is widely expected to stick with current policy

The Bank of Japan decides the best shape for the yield curve at every policy meeting, and could make adjustments before inflation hits the target, according to one of the bank’s new deputy governors.

“Conceptually and theoretically, we haven’t ruled out the possibility of adjusting the yield curve” Masayoshi Amamiya said in response to a question about whether the BOJ could adjust rates before inflation reached the 2 percent target. “However, we are not at the point of considering that at the moment.”

The yen strengthened against the dollar after the comments, which were similar to what Governor Haruhiko Kuroda said earlier this month. Amamiya and Masazumi Wakatabe, the other new deputy governor, began five-year terms on Tuesday, and were speaking at their inaugural press conference.

While Japan’s economy is in the middle of the longest expansion in nearly three decades, the BOJ faces challenges in the next few years. While markets are focused on how and when the BOJ might start exiting from monetary easing, the bank is still increasing stimulus to hit its distant inflation target, and it must help deal with the slowdown in consumer spending expected after a planned 2019 tax hike.

Inflation Not At Target

BOJ is more optimistic than the market

Source: Statistics Bureau, Bank of Japan, Bloomberg surveys

Note: Spike in inflation in 2014 due to sales tax and is discounted by the BOJ. Data is for fiscal years, which start in April.

“The term for the BOJ’s new leadership will be a a very challenging one,” said Shinichiro Kobayashi, an economist at Mitsubishi UFJ Research & Consulting. “Inflation won’t reach their price target, but they have few tools to get closer.”

Japan’s economic expansion hasn’t caused inflation to accelerate to the 2 percent target. Core consumer prices rose 0.9 percent in January, the same as in December.

Read about what we learned from 12 hours of confirmation hearings

Wakatabe’s comments were less aggressive compared with what he said before his nomination for the position.

“It’s true that I have advocated aggressive monetary policy but from here on I’m going inside the BOJ as a deputy governor,” said Wakatabe. “I will have new data and information, and there will be discussions with my fellow board members. Considering that, it’s of course possible to update and modify my thinking.”

‘Updated’ thinking

“I expect my knowledge and judgement will be updated through working in finance as a deputy governor,”’ Wakatabe said.

Wakatabe, formerly an academic, was critical of BOJ policy before he was nominated to the board, and called for extra stimulus in December. Whether he will vote against the majority is something to watch at his first policy meeting in April. In a December interview, he said the BOJ should expand stimulus to meet the price goal before the sales tax is hiked in October 2019.

Kuroda said earlier this month that it’s desirable if the governor and deputies are on the same policy page, although he noted that the BOJ’s law doesn’t prohibit them from having different opinions. However, it seems that board members value consensus - neither of the previous deputy governors under Kuroda ever dissented.

Amamiya, a veteran policy architect at the BOJ, is likely to support Kuroda as he has done for the last five years as the executive director for monetary policy. Some analysts see him as a potential governor in the future, with Eisuke Sakakibara, a former top currency official, saying last year that Kuroda will step down in the middle of his term and Amamiya will succeed him.

Kuroda and his new deputies all expressed the need to continue monetary easing during confirmation hearings in parliament earlier this month. In the press conference today, Wakatabe said the bank shouldn’t hesitate to add stimulus if needed, but declined to detail any specific tools for additional easing. Amamiya repeated earlier comments that he will decide monetary policy by weighing the benefits and costs.

Even though most economists don’t see the BOJ meeting its target, 30 of 49 economists expect policy tightening in Jan. 2019 or later, and 14 see that coming this year, according to a Bloomberg survey earlier this month. Only five forecast further easing.

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