Shinichi Uchida, the incoming Deputy Governor of the Bank of Japan (BOJ), has dismissed the possibility of a rapid revision of Japan’s relaxed monetary policy, stating that any review of its policy framework could take up to a year.
Uchida, a central banker by profession, stated that the BOJ should not adjust its ultra-loose policy to address the side effects of prolonged stimulus, such as market distortions resulting from the bank’s extensive intervention to preserve its yield cap.
“The BOJ must maintain monetary easing. It shouldn’t modify easy policy just because there are side-effects. Rather, it must come up with ideas” said Uchida, speaking at an upper house confirmation hearing.
Uchida stated that a full review of the BOJ’s policy framework may take between one to one-and-a-half years, based on the experience of their American and European counterparts.
With inflation exceeding its objective of 2%, markets are replete with rumors that the BOJ may revamp its yield curve control (YCC) strategy when Ueda succeeds Governor Haruhiko Kuroda, whose term expires in April.
While emphasizing that it was premature to consider an exit plan from ultra-loose monetary policy, Uchida stated that any exit would necessitate modifications to the BOJ’s interest rate objectives and balance sheet size.
“In what order and at what timing the BOJ will make these adjustments will depend on economic and financial developments at the time,” Uchida explained.