MNI INTERVIEW: BOJ Framework Set In Stone Until Kuroda Gone

The Bank of Japan will be limited to policy fine-tuning until Governor Haruhiko Kuroda steps down in April 2023, with no great shift in the wider framework unless the economy takes off, a former Board member has told MNI.

"Small fine-tuning may be possible but the framework of monetary policy will not change under Governor Kuroda unless the pace of economic recovery accelerates sharply," according to Makoto Sakurai, who stepped down from the BOJ's board on March 31

Policymakers have engineered room to trim the short-term policy rate further into negative territory if needed, but the BOJ is unlikely to go there without a fresh crisis or the threat of a significant, sustainable rise in the yen, Sakurai said.

"The BOJ can further lower the short-term policy interest rate (from -0.1%) but it will not use the measure unless a systemic shock, such as the Lehman Shock/Coronavirus, or constant yen rise, such as through JPY100, occurs," he said, although he sees no sudden appreciation of the currency anytime soon with all the major global central banks currently in an accommodative stance.

A trading range of plus or minus JPY5 from current level of JPY107-108 would not trouble the BOJ, he said.

NEW BROOM

The new BOJ executive following Kuroda will be a turning point for the Bank's policy framework, Sakurai said, although it may take a wait-and-see attitude for one or two years, depending on economic and financial conditions.

As for the economic climate, Sakurai said that private consumption, and particularly face-to-face services, will remain in a depressed state for some time due to the third state of emergency.

"Japan is slow in vaccinating people. But if the rollout accelerates, private consumption will return to normal growth in the fourth quarter of this year or the first quarter of 2022," Sakurai said.

He doesn't see the economy deviating from its moderate recovery path as the global economy is strong and capital investment remains solid.

"The March Tankan survey and the latest (BOJ) branch managers' meeting confirmed that capital investment is stronger than initially expected," Sakurai said, adding that private consumption will provide further support as the economy reopens and social distancing measures are eased.