Incoming BOJ deputy head brushes aside near-term tweak to easy policy
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[February 28, 2023] By
Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) -Incoming Bank of Japan (BOJ) Deputy Governor Shinichi
Uchida on Tuesday brushed aside the chance of an immediate overhaul of
ultra-loose monetary policy, suggesting that any review of its policy
framework could take about a year.
Uchida, a career central banker, said the BOJ should not modify its
ultra-easy policy just to address the side-effects of prolonged stimulus
such as market distortions caused by the bank's heavy intervention to
defend its yield cap.
"The BOJ must maintain monetary easing. It shouldn't modify easy policy
just because there are side-effects. Rather, it must come up with ideas"
to mitigate the costs and help sustain stimulus, Uchida told an upper
house confirmation hearing.
If the BOJ were to conduct a comprehensive review of its policy
framework, it could take one to one-and-a-half years if the experience
of U.S. and European counterparts is anything to by, Uchida said.
"Any such special type of examination is better done by taking a wide
perspective looking at various factors," he added.
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The remarks follow those of incoming BOJ Governor Kazuo Ueda on Monday
suggesting his preference to spend "plenty of time" if the central bank
were to conduct a review of its policy framework.
With inflation exceeding its 2% target, markets are rife with
speculation the BOJ will overhaul its yield curve control (YCC) policy
once Ueda succeeds incumbent Governor Haruhiko Kuroda, whose term ends
in April.
BOJ board member Naoki Tamura has openly called for the central bank to
conduct a review of its 2% inflation target and its ultra-loose policy,
in light of criticism that prolonged low rates were hurting financial
institutions' margins and distorting the shape of the yield curve.
Earlier this month, the government named Uchida and Ryozo Himino, former
head of Japan's banking sector watchdog, to become next BOJ deputy
governors when the incumbents' terms end in March.
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![](../images/022823PIX/busine24.jpg)
The Japanese government's nominee for
the Bank of Japan (BOJ) Deputy Governor Shinichi Uchida speaks
during a hearing session at the lower house of the parliament in
Tokyo, Japan, February 24, 2023. REUTERS/Issei Kato
![](http://archives.lincolndailynews.com/2023/Feb/28/images/ads/current/graue_lda_22COLORADOpreowned_022023.jpg)
Under YCC, the BOJ guides short-term rates at -0.1% and the 10-year
bond yield around 0% with an implicit ceiling of 0.5% to reflate
growth and fire up inflation to its 2% target.
"It's true negative rates have hurt financial institutions'
profits," Himino told the same confirmation hearing.
"While mindful of the impact on bank profits, it's important to
support the economy with accommodative policy now to create an
environment where companies can boost wages," he said.
While the BOJ needs to strategise ideas of an exit based on various
economic scenarios, it can only debate specifics of the plan when
sustained achievement of its 2% inflation target is foreseen, Himino
said.
The BOJ has been forced to ramp up bond buying to defend its 0.5%
cap set for the 10-year bond yield under YCC, leading some market
players to bet it will tweak or abandon the policy soon.
BNP Paribas chief Japan economist Ryutaro Kono, for one, has
predicted the BOJ could raise the yield cap at its next meeting in
March, to allow bond yields to move more flexibly.
The BOJ on Tuesday offered 1 trillion yen ($7.34 billion) in
five-year loans against collateral to banks, as part of efforts to
defend its 0.5% yield cap.
The deputy governor nominations need the approval of the upper and
lower houses of the Diet, which are effectively done deals as the
ruling coalition holds solid majorities in both.
($1 = 136.3100 yen)
(Reporting by Leika Kihara and Tetsushi Kajimoto; Editing by
Jacqueline Wong and Sam Holmes)
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