BOJ Nears Stimulus Exit

Bank of Japan give signs of easing monetary stimulus program


Bank of Japan Governor Haruhiko Kuroda is edging closer to his predecessor’s approach in relation to stepping away from the bank’s heavy monetary policies.

An actual exit from the monetary stimulus programs cannot be expected anytime soon, but the central bank policymakers are already in discussions for methods to raise bond yields, which have been hovering near-zero levels. It would be the first step toward the closing of the crisis-mode policy, according to sources familiar with the matter.

The latest sign that the central bank is stepping away from Kuroda’s radical monetary experiment was last month’s decision to drop a deadline for reaching its target inflation level.

The move can be considered as some sort of acknowledgement of the troubles that the prolonged monetary stimulus causes for the banks. It also enables the Bank of Japan to be more flexible on the monetary policy, according to the sources. The flexibility, in turn, will be useful for the bank if it targets to raise its yield target before inflation hits its 2 percent target.

“It’s back to the old days, when monetary policy was guided by carefully weighing the pros and cons of each step,” one of the sources stated.


The normalization of the policy will be gradual, providing a lot of signals to keep it from disrupting the markets. This was unlike the “bazooka” stimulus that was implemented by Kuroda half a decade ago.

According to sources, the signs could be subtle, like the bank’s modest upgrade in its assessment of inflation expectations or stronger warnings on the risks of prolonged stimulus.

“The trigger for action has become ambiguous as the BOJ puts more weight on factors besides inflation, such as the impact of its policy on the banking system,” said another source.

Kuroda has followed orders from Japanese Prime Minister Shinzo Abe to lift the country out of decades of deflation. He deployed a huge stimulus program in 2013 with a promise to achieve the target in just 2 years.

However, the years of efforts have failed to lift inflation.

“There’s a chance that inflation expectations may not heighten smoothly,” Kuroda said the previous week. This is very different from his comments five years ago that bold actions could invigorate price growth.

The central bank governor said that he still wants to achieve 2 percent inflation as quickly as possible. However, he has become more welcoming to the debates over whether to end the stimulus program, stating that the central bank would hold talks about the conditions to do so if the inflation target seems achievable.

Meanwhile, some people at the central bank have warned that the cost of easing was increasing and the returns were decreasing.

“Many people in the BOJ have their eyes set on an eventual policy normalization,” said one former board member named Takahide Kiuchi, who retains useful insight into the workings of the bank’s policy. “From now on, the BOJ will put more attention to how its policy is affecting the banking system.”

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