MNI INSIGHT: BOJ Sees No Need For Policy Strategy Review Now

The Bank of Japan sees no current need for a strategy review that would include studying forward guidance and a widening of its communication tools with markets as economic and financial conditions don't yet warrant a change, MNI understands.

Three board members made the case for a review of both policy strategy and communications tools at the September 15-16 board meeting, the summary of opinions show, although only two flagged it as an issue for future consideration. Additionally, there is no consensus across the board as to what any such review should encompass.

One of three unnamed members may be Goushi Kataoka, a proponent of a policy review long before the Covid-19 pandemic hit the economy. His position could become clearer when the meeting minutes are released on Nov. 4.

CONDITIONS

Bank officials see no need for an early review of either the policy strategy or forward guidance unless conditions change sharply, with factors such as strict lockdowns around the globe or the absence of an effective vaccine likely to shape thinking.

Framing its own policy against the actions of other central banks will also be central to the BOJ's thinking with the U.S. Federal Reserve unlikely to lower its price target of 2% as it has already committed to achieving and even surpassing that level as part of its current policy goal.

In fact, academic debates in the U.S. lean towards the Fed even upping its price target, boosting its tools and making sure it increases -- and anchors at a higher level -- people's inflation expectations.

However, BOJ insiders at least accept that they -- and the European Central Bank -- will have to take a much closer look at their policy positions and targets if the Fed does lower its own inflation goal.