Factbox-How the BOJ is quietly unwinding Kuroda’s ‘bazooka’ stimulus

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TOKYO (Businesshala) – After years of shock and awe-inspiring monetary stimulus, senior Bank of Japan officials are quietly dismantling the radical policies launched by Governor Haruhiko Kuroda.

FILE PHOTO: A man wearing a protective mask walks past the headquarters of the Bank of Japan, amid the coronavirus disease (COVID-19) outbreak, in Tokyo, Japan May 22, 2020. REUTERS / Kim Kyung-hoon / FILE PHOTO

The details of the steps taken so far are given below:

Bazooka and his death

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Hand-picked by then-prime minister Shinzo Abe to lift Japan out of economic stagnation, Kuroda implemented his “Bazooka” asset-buying program in 2013 by printing money to get the public out of a deflationary mindset. To double the speed can be promised. BOJ’s 2% inflation target in two years.

In adopting a policy called “quantitative and qualitative easing” (QQE), the BOJ changed its policy target to base money off interest rates, and on a set of riskier assets such as government bonds and exchange-traded funds (ETFs). ) is committed to purchase. Speed.

But years of heavy currency printing failed to increase inflation and drew heavy criticism for draining the bond market’s liquidity. Forced to further ease policy to counter an unwanted yen spike, the BoJ adopted negative interest rates in January 2016.

The move failed to reverse the yen’s growth and led to more criticism of commercial banks for crushing bond yields and interest margins.

shift to ycc

Forced to respond, the BoJ adopted the yield curve control (YCC) in September 2016, which combined a -0.1% target for short-term rates with a pledge to guide 10-year bond yields around 0%.

In going back to interest rate targets, the BOJ acknowledged that reversing Japan’s deflationary mindset with the Wall of Money proved difficult – the first retreat from Kuroda’s radicalism.

Bond ‘stealth’ tapering

The BOJ’s change to YCC freed it from a certain commitment to buy bonds. This can slow buying as long as the 10-year yield is capped at zero.

Aware of the BoJ’s huge presence in the bond market, bureaucrats began to organize a slow but steady “stealth” taping of bond purchases.

As inflation continued to miss its target, in 2018 the BOJ closed quarterly disclosures on the expected time frame to hit 2% inflation.

march review

While bureaucrats were successful in reducing bond purchases, they had yet to make progress in streamlining QQE’s complex legacy policies.

Making things difficult, in 2020 the coronavirus pandemic forced the BoJ to respond with more stimulus, including a plan to pump money through financial institutions to struggling smaller firms.

However, by mid-2020 BOJ bureaucrats began working on a longer-term ETF taper plan, encouraged by the calm response of investors to the slowdown in asset purchases after the market pandemic subsided.

After months of internal debate, the BOJ resolved to buy the ETF at a set pace in March this year, saying it would buy assets only in times of crisis. It was the beginning of a sneak taper of risky property purchases.

The move was part of a BOJ package that followed a review of its policies, and included a compensation scheme to cushion the blow to banks’ profits from negative rates.

The March package was the most conclusive and comprehensive list of measures taken by the BOJ since the YCC to address the cost of Kuroda’s policies.

quasi-fiscal policy

With its policy instruments exhausted after years of radical stimulus, the BOJ is now entering areas that were once considered outside the purview of central banks.

In November last year, the BoJ unveiled a plan to pay 0.1% interest on deposits by regional banks to cut costs, boost profits or consolidate.

For the first time, the BOJ was offering payments to a specific industry aimed at driving change in that sector, a move critics see as a risky aberration in industrial reform.

In July, the BOJ unveiled a plan to boost funding to fight climate change, which aligns with the government’s broader agenda around carbon neutrality.

The BoJ will not buy green bonds directly and will only provide loans to banks that promote green finance. But critics see the move as blurring the line between monetary and industrial policies and distracting the BOJ from its primary mandate of achieving price stability.

Reporting by Leika Kihara; Editing by Sam Holmes


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