Bank of Japan Governor Kazuo Ueda is facing criticism for his communication style that has been confusing markets and raising concerns about an imminent exit from ultra-loose monetary policy. Former BOJ board member Takako Masai has expressed her dissatisfaction with Ueda’s comments and the impact they have had on market expectations. Ueda’s remarks in parliament about the policy outlook, including the possibility of ending the negative interest rate policy, have led to a surge in bond yields and the yen. Masai believes that Ueda should not speak beyond what has been decided at the board and that his communication style is narrowing the BOJ’s options on the exit timing.
Masai points out that Ueda’s hawkish remarks in parliament contradicted the recent comments made by several other board members who warned against premature debate of an exit. This has raised doubts about whether Ueda is accurately representing the views of the board in public. Masai, who served on the board from 2016 to 2021, emphasizes the importance of the governor sticking to the decisions made at the board meetings and not adding confusion to the communication process. Unfortunately, Ueda’s recent comments have fueled speculation of imminent action and have led traders to price in the chance of a policy change.
With inflation in Japan exceeding the BOJ’s 2% target for a significant period, many market players expect the central bank to lift short-term rates out of negative territory soon. However, Masai believes that a more gradual approach is necessary. She emphasizes that in a country with a history of stagnant price and wage growth, creating a positive wage-inflation cycle and maintaining it will take time. Therefore, ending the ultra-loose policy too quickly would deviate from the government’s focus on achieving durable wage growth and avoiding a return to deflation.
The Government’s Stance on Deflation
Prime Minister Fumio Kishida has made a full exit from deflation his policy priority. He has announced measures to encourage firms to increase wages and has not officially declared that Japan is permanently out of deflation. Masai believes that considering the dovish comments made by various board members and the government’s assessment of the economy, it is unlikely that the BOJ will change its policy as quickly as the markets expect. She believes that the BOJ’s decision-making process will take into account the need for sustained wage growth and the prevention of deflation.
The Role of the BOJ Governor
As the chair of the policy meetings, the BOJ governor has a responsibility to accurately represent the decisions made by the board. Masai expresses her concerns about the sequence of the BOJ’s recent communication, which she believes is confusing and limiting the bank’s options on the exit timing. She emphasizes that the governor should not speak beyond the decisions made at the board and should avoid creating unnecessary market volatility.
Bank of Japan Governor Kazuo Ueda’s communication style has come under scrutiny for the confusion it has caused in the markets regarding the timing of an exit from ultra-loose monetary policy. Former BOJ board member Takako Masai has raised concerns about Ueda’s remarks, stating that he should not speak beyond the decisions made by the board. Masai believes that a more gradual approach to policy change is necessary, considering the need for sustained wage growth and the prevention of deflation. The government’s focus on achieving durable wage growth also suggests that the BOJ is unlikely to change its policy as quickly as the markets expect. It is crucial for the governor to accurately represent the decisions made by the board and avoid adding unnecessary confusion to the communication process.
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