Talking Points
- Officially the Bank of Japan remains committed to ultra-loose monetary policy
- But the size of its balance sheet has caused some worried glances already
- Now two former BOJ members have broken cover and said its time to change
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The Japanese Yen rose Wednesday, probably thanks to generally diminished investor risk appetite but traders may also have a new bull factor to price in: increasing calls for a change to monetary policy.
Officially the Bank of Japan is in ultra-accommodative mode and likely to remain so for as long as inflation remains subdued. That amounts to very low interest rates, vast buying of government debt and control of the yield curve; the cocktail of “quantitative and qualitative easing” (QQE) which has been with us for a while.
However, the enormous swelling of the Bank of Japan’s balance sheet as the result of this policy has attracted some nervous glances and now some former BoJ policy-setters are wondering aloud whether the monetary settings should be changed.
Former board member Takahide Kiuchi reportedly said on Monday that the current targeting of ten-year yields could be replaced by a 3-5 year target. Much more pointedly, he also reportedly said that the BoJ was not monitoring the possible policy side-effects closely enough and that normalization must start now.
BoJ-watchers may recall that Mr. Kiuchi was a frequent dissenter during his tenure at the policy board, and that this is not his first assault on central bank policy from outside the tent. However, this time he is not alone. On Sunday, former Deputy Governor Kazumasa Iwata was reported as saying that the BoJ should reduce its annual bond-buying target by 50% to 40 trillion yen (US$360 billion).
For now, this is a modest chorus to be sure, but one that bears watching nonetheless to see whether it grows. If the idea that a policy shift is coming, or even more likely, were to take hold then it would be bearish indeed for USD/JPY.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
