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MNI INTERVIEW1: Ex-BOJ Hayakawa: BOJ Policy Normalization Done


Latest policy moves to ready for deeper negative rates cosmetic

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The Bank of Japan is finished with policy normalization moves for now with recent steps to prepare for a push deeper into negative territory largely done to keep the reflationist wing of the Policy Board on side, a former BOJ executive director and chief economist told MNI.

Accepting that BOJ policy statements are often difficult documents to pull together, Hideo Hayakawa, now senior fellow at the Tokyo Foundation for Policy Research, said in an interview with MNI that the actions were a by-product of satisfying the monetary policy needs of the more dovish board members and getting them to agree with policy decisions.

He highlighted the BOJ's announcement in March creating an environment where it can deepen the negative interest rate if needed through additional subsidies to commercial banks – in part to placate those policymakers – although the bank has no intention of cutting rates further at present, Hayakawa said.


Echoing recent comments to MNI by Makoto Sakurai, his successor at the BOJ, he said any major shifts in settings, including abandoning the 2% price target and the negative rate policy, are off limits as these would be seen as a repudiation of Governor (Haruhiko) Kuroda's approach, he said.

"The BOJ cannot abandon its 2% price target and its negative interest rate policy," Hayakawa said, as doing so "will mean a denial of Kuroda's policy,".

"Reducing JGB and ETF purchases was the top priority for the BOJ and the bank has eliminated the target of JPY80 trillion on JGBs and JPY6 trillion on ETFs to achieve that," he said.

"The BOJ will now maintain the current policy framework and continue to wait for prices to rise although minor changes or fine-tuning to policy are possible," Hayakawa added.