MNI INTERVIEW1: BOJ Policy Tweak By Year End Possible -Momma

The Bank of Japan will adjust monetary policy, including yield curve control, by the end of 2023 at the earliest, or the beginning of 2024 if various conditions are satisfied, a former BOJ chief economist told MNI.

“A big point for policy tweak is spring wage negotiation in 2024,” said Kazuo Momma, who was also the BOJ’s executive director in charge of monetary policy and is now executive economist at Mizuho Research and Technologies. He added the BOJ could judge wage increases next year before the spring wage negotiation.

“If prices and corporate profits are strong in the second half of this fiscal year, it will pave the way for the BOJ to predict strong wage increases next year, which in turn will cause [a] BOJ policy tweak,” Momma said.

YCC TWEAK

“The possible options are to raise the 10-year target to around 0.25% or 0.50% from around zero percent and then to raise the short-term policy target to zero from -0.1%,” Momma said. “They would happen at almost the same time or raising the long-term target would precede a little.”

He continued that the BOJ could raise the short-term policy target to 0% after one or two meets in post-raising the long-term target rate. Momma added that the BOJ could scrap YCC after raising the short-term policy target rate on the premise that the 2% price target will be achieved.

BOJ Governor Kazuo Ueda noted in April the central bank deemed YCC appropriate given current economic and price conditions (See: MNI BRIEF: BOJ Ueda: Continuing With YCC Appropriate Now). Following the Bank’s last board meeting in late April, which left policy unchanged, Ueda explained concern surrounded the impact of premature tightening on prices (see: MNI BOJ WATCH: Ueda Stresses Caution Ahead Of Policy Review). The BOJ has not officially communicated publically about the future of any policy tweaks.

Momma explained the probability of a tweak to policy, including YCC, was about 20%, “because various conditions are necessary for the BOJ to do it.”

“Needless to say, the high probability of wage increases next year and solid corporate profits are necessary, and their continuation is also needed. But, for example, if the U.S. economy falls into recession, the BOJ would lose policy tweak chance. This is why my view is about 20%.” Momma said, while the U.S. economy will likely fall into recession, the timing and degree of severity were uncertain.