Former Bank of Japan Deputy Governor Masazumi Wakatabe said there is a possibility that the central bank will change the wording of its forward guidance without adjusting its easing bias at the end of its policy meeting Friday.
(Bloomberg) — Former Bank of Japan Deputy Governor Masazumi Wakatabe said there is a possibility that the central bank will change the wording of its forward guidance without adjusting its easing bias at the end of its policy meeting Friday.
“There is a possibility” that the BOJ will drop its reference to Covid-19 from its guidance, Wakatabe said in an interview with Kathleen Hays on Bloomberg TV Thursday. Still, the bank “also expects short and long term policy interest rates to remain at their present or lower levels. That part is quite important.”
Whether the BOJ will adjust its forward guidance is a key point for Governor Kazuo Ueda’s first policy meeting. Wakatabe said tweaking the guidance would suit Ueda, given he is known as the inventor of the guidance when he was a BOJ board member between 1998-2005.
Wakatabe cited the government downgrading its classification of Covid-19 to the same level as seasonal influenza on May 8 as a reason why the change may happen. The BOJ let its Covid funding program end as scheduled last month.
Almost 90% of BOJ watchers expect no change to the main policy settings on Friday, including the yield curve control and the negative interest rate. Some economists flag the risk of adjustments to the YCC, but Wakatabe disagreed.
“I would be very surprised if the BOJ changes the YCC” at this meeting, Wakatabe said in his first media interview after his five-year term at the central bank ended on March 19. There is an overwhelming reason for keeping the current yield control due to uncertainties in achieving the target in a stable manner, he said.
Some 66% of economists forecast the BOJ will take a tightening step by July in a Bloomberg survey this month. Wakatabe, known as a strong advocate of monetary easing, indicated he doubts the move would come that early, while pointing out that the definition of tightening depends on the economist.
There is some “false hope” that Governor Ueda would break away from Governor Kuroda’s legacy, Wakatabe said. It’s still unclear whether companies will continue to raise wages and it’s likely to take a while to examine developments. “In that sense, June or July would be too early in my understanding.”
–With assistance from Yuko Takeo.
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