SVB crisis may cause the BOJ to delay making changes: Ex-board member

Japan’s central bank may delay any changes to monetary policy in light of the turmoil the Silicon Valley Bank crisis has sparked in financial markets, a former board member told CNBC.

And any changes to its ultra-dove stance could be delayed by as much as a year, said Nomura Research Institute economist Takahide Kiuchi, who served on the Bank of Japan’s board from 2012 to 2017.

Kiuchi earlier expected incoming governor Kazuo Ueda to speed up the BOJ’s normalization of monetary policy – including extending the current yield curve control policy to maintain Japanese government bond yields at around 0% and remove the negative interest rate it has held since 2016.

That is no longer the case.

“I think the new governor’s monetary policy could be affected by financial market conditions if the current volatility in financial markets continues,” Kiuchi said in an interview with CNBC.

“The second half of next year is [the] possible timing of when the Bank of Japan will end its negative interest rate policy,” he said.

In his last meeting earlier this month, outgoing Bank of Japan Governor Haruhiko Kuroda kept interest rates at -0.1% and stood by the central bank’s inflation target of 2% and its plan to keep government bond yields around 0%. .

Kiuchi emphasized that the Fed’s next steps will remain an “important factor” for the Bank of Japan’s path forward.

“If the US economy slows significantly, causing an interest rate cut by the Federal Reserve Board, the BOJ’s normalization may have to be significantly delayed,” Kiuchi said.

Kiuchi still expects to see the Bank of Japan widen its yield curve tolerance range this year – he expects the range to widen from 50 basis points to 75 or 100 basis points as early as June.

“Now that the JGB is low … if these conditions continue, I think the BOJ may expand the upper limit,” he said.

Kiuchi said public sentiment is also an important indicator for the Bank of Japan – adding that the central bank will eventually aim for “flexibility” in monetary policy.

“I think that inflexibility caused a sharp weakening of the yen last year, which was very unpopular with the public,” he said.

“That’s the reason for it [Prime Minister Fumio Kishida’s] The government wants more flexibility under the new law [BOJ] governor,” he said.

The Japanese yen weakened over 150 against the US dollar last October as interest rate differentials widened between the US central bank’s hawkish stance and the Bank of Japan maintaining negative interest rates.

The central bank’s board expressed dissenting opinions about the current policy, minutes from the policy meeting in January showed.

One member “expressed recognition that it was appropriate to continue monetary relief at this time, although it was necessary to examine and assess the balance between positive effects and side effects at some point in the future,” minutes showed.

However, another member said “it was inappropriate to rush out of the current monetary policy because foreign economies were now headed for recession.”