Tokyo: The Bank of Japan (BoJ) should nimbly end its negative interest rate policy with minimum fuss, according to an economics professor and former adviser to an economic panel for the prime minister.
“Of course it’s time for the BoJ to normalise policy,” Hiroshi Yoshikawa, professor emeritus at the University of Tokyo, said in an interview Tuesday. “Measures from the negative rate to yield curve control have all been characterised as ultra-easy policy. But we’re not in a situation where we need them anymore.”
The comments from Yoshikawa, a friend of BoJ governor Kazuo Ueda for more than five decades, come with the central bank chief widely tipped to raise rates for the first time since 2007 in March or April.
Even with the economy in a technical recession, the BoJ is facing hardly any signs of opposition to scrapping its negative interest rate as the strongest price growth in decades weighs on households and businesses.
Almost two years of data support the view that Japan’s economy is in a clear state of inflation and no longer needs extraordinary monetary support, Yoshikawa said.
“It should be fine for the bank to change policy nimbly by simply looking at economic conditions,” said Yoshikawa. “There’s an expression that doing something drastic is like jumping off the stage at Kiyomizu temple,” he said referring to one of Kyoto’s most famous landmarks, which overlooks a large drop.
“Existing policy shouldn’t be like that,” Yoshikawa said. “It should be more like doing business as usual.”
The latest inflation figures released Tuesday continue to point to stickiness in Japan’s prices. The country’s key inflation gauge rose 2% in January, outpacing economists’ forecasts and extending its stay at or above the BoJ’s target level for 22 months, according to a government report.
Those figures will keep speculation simmering over an early policy change with the BoJ scheduled to deliver its next rate decision on March 19, four days after the results of annual wage negotiations. This year’s pay deals are expected to outstrip last year’s, supporting the view that a positive wage-price cycle is emerging that will persuade the bank to lift off.
Yoshikawa, a former member of a key prime ministerial economic panel in the 2000s, said it’s important for the BoJ to normalise policy when economic conditions allow to create policy space in case monetary easing is required in the future during an economic downturn.
Ueda and Yoshikawa went to the same high school and university in Tokyo. Yoshikawa became a BoJ counsellor a month after Ueda took the helm at the bank in April last year. He is also emeritus head of the policy research institute at the finance ministry.
“I wish him the best of luck,” Yoshikawa said of Ueda. “Financial markets and the government are making the BoJ’s exit into a special event and fixating on if the bank is going to act and when. As the governor in charge of the policy, he may have little choice but to be cautious.”
Still, Ueda has already made headway toward normalising BoJ policy from its massive easing programme, Yoshikawa said. Ueda adjusted the BoJ’s yield curve control programme twice last year to make it more like an insurance policy to prevent sudden surges in bond yields. That flexible approach has allowed the bank to refrain from massive bond buying and a further distorting of market functioning.
“Having come this far, I feel they are just one step away from their goal,” Yoshikawa said. — Bloomberg
