By Leika Kihara
TOKYO (Reuters) – The Bank of Japan will release next month its findings on the pros and cons of the various unconventional monetary easing tools used in its 25-year battle with deflation, in another symbolic step towards ending its massive stimulus.
While the BOJ has said the outcome of the review will not have direct implications on near-term monetary policy, it will likely include findings and surveys that justify its plan to steadily proceed with policy normalisation.
The BOJ will release the findings after its final policy meeting of this year on Dec. 18-19, when some analysts expect it to hike interest rates from the current 0.25%.
The review will be the BOJ’s first attempt to take a deeper, analytical look at the drawbacks of prolonged monetary easing.
Notably, it will likely explain how central banks have limited power in changing public perceptions about future price moves, as seen in the mixed results of former Governor Haruhiko Kuroda’s radical stimulus that sought to shock Japan out of a deflationary mindset.
The findings of Governor Kazuo Ueda’s flagship project, which began when he took office in April last year, may offer insight into what tools the BOJ would use – and prefer not to use – in dealing with the next economic downturn.
It may also include hints on what risks the BOJ may focus on as it continues to taper asset buying and raise interest rates from still-near zero levels.
“We hope to provide material that will be useful in thinking about desirable monetary policy in the long run,” BOJ Governor Kazuo Ueda told a news conference on Oct. 31.
The review may become a handy guide for other central banks as an encyclopedia of unconventional easing tools and their efficacy.
Japan’s 25-year experience of deflation and economic stagnation forced the BOJ to become a pioneer of unconventional policies such as zero interest rates and quantitative easing.
Other global central banks later resorted to similar radical measures during severe downturns such as the global financial crisis and COVID pandemic, but have been largely able to exit them fairly quickly when their economies began bouncing back.
As a board member, Ueda played a key role in the BOJ’s introduction in 1999 of forward guidance – or a promise to keep rates low for a prolonged period in hope of stimulating demand.
The most controversial policy came in 2013 when, under Kuroda, the BOJ launched a huge asset-buying scheme that later combined negative interest rates…
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