The Bank of Japan is likely to orchestrate an exit from its easy monetary policy in the second half of next year even if the increases in inflation and wage negotiations this year cannot be sustained, former BOJ policy board member Takahide Kiuchi said on Thursday.
The BOJ believes that continuing its long-lasting easy monetary policy can increase the risk of side effects on the economy, and could use "this logic" to end the policy even if its 2% inflation goal is not achievable, Kiuchi told the Reuters Global Markets Forum (GMF).
Under its yield curve control (YCC) policy, the BOJ guides short-term interest rates at minus 0.1% and the 10-year government bond yield around 0% to reflate economic growth and sustainably achieve its 2% inflation target.
In July, the central bank took steps to allow long-term rates to rise more, reflecting higher inflation, but described the action as aimed at making YCC more sustainable. Markets, meanwhile, saw the move as another step towards the BOJ dialing back its massive stimulus programme.
"The last step could be the removal of ETFs (exchange traded funds) equity from the balance sheet of the Bank of Japan, but maybe it takes a few years, maybe until the end of the term of Mr. Ueda," Kiuchi said. Ueda, who became governor in April, will see his five-year term end in 2028.
There was no consensus within the nine-member board on how soon the BOJ can scale back its massive monetary stimulus, with board member Toyoaki Nakamura arguing it was premature to tighten policy, in sharp contrast with other board member Naoki Tamura's view signalling the chance of an end to negative interest rates early next year.
"Eventually, I believe that Mr. Ueda has strong intentions to change the monetary policy," said Kiuchi, who is now executive economist at the Nomura Research Institute.
Kiuchi expected spring wage negotiations to be impacted by declining inflation, which could then make next year's wage growth rate lower than this year. "That could be a disappointment," he said. (Join GMF, a chat room hosted on Refinitiv Messenger, for live interviews: https://tinyurl.com/yyr3x6pu)
(Reporting by Divya Chowdhury and Savio Shetty in Mumbai, and Anisha Sircar in Bengaluru; Editing by Miral Fahmy)