It’s rather common to see former BOJ policymakers deliver bold remarks after they have left the central bank. And this time is no different, with Yamamoto offering up some comments in an interview with MNI. He is one to have spent 36 years at the BOJ, before leaving to head the Office KY Initiative.
His remarks places blame on the BOJ in not being proactive enough on monetary policy, and is now suffering for that as markets punish Japan with selling in the yen currency and in the JGB market. He now urges the central bank to correct that and to raise interest rates at a quarterly pace. Yamamoto says that:
“Looking ahead, it is appropriate for the bank to accelerate the pace of rate hikes. The BOJ did not raise the policy rate consistently or in a timely manner and consequently, it is now paying the price through yen and JGB selling.”
Adding that the current policy rate remains a considerable distance away from what is perceived to be the neutral rate for Japan. Thus, he argues that quarterly rate hikes will be appropriate as opposed to moves that are spaced out every six months instead.
At this point, Yamamoto says that the BOJ has little choice but to scrutinise the pace and terminal rate in trying to push forward with timing their rate hikes.
He also warns that the central bank has to try and take action so as to not allow markets to keep pressuring Japanese assets, in particular the bond market. However, he did warn that taking the easy way out and intervening to curb rising yields may not be the best solution.
“If the BOJ leaves rapid JGB moves alone, it could face criticism. But it will also face a difficult challenge in deciding how to cope with them.”
Going back to inflation targeting and managing monetary policy, Yamamoto believes that the BOJ is now behind the curve so to speak. However, the response to high prices should be to tighten credit conditions and to have restrained fiscal spending. However, Takaichi implementing opposite measures to the BOJ is now making things rather difficult to find the right answer.
This article was written by Justin Low at investinglive.com.
