BOJ’s policy may change after Kuroda’s resignation

According to a former employee of the BOJ, Governor Haruhiko Kuroda is due to step down his post in April next year. This raises the question for the central bank about its policy choices for the near future.

Makoto Sakurai, a former Bank of Japan board member, said that some changes may be needed after a closer examination of the side effects of the current policy. Also, according to Sakurai, it is possible to abandon the negative interest rate, followed by an extension of the target range for bond yields.

Nevertheless, the former official believes that these changes would not amount to a normalization of policy, as its basic structure and easing effect would remain largely unchanged. According to him, no changes are foreseen as long as Kuroda remains as governor of the Bank of Japan.

Sakurai said the central bank will probably want to adjust the plan if the economy continues to recover. Canceling negative rates won't have much of a negative impact on the economy.

ETF buying may also stop. This follows a significant reduction in purchases that the Bank of Japan has been able to make with limited impact on the stock market. Purchases this year totaled 561 billion yen ($3.8 billion), well below the 12 trillion yen ceiling set by the Bank of Japan.

According to Sakurai, all this "fine-tuning" should not be seen as the beginning of normalization. The Bank of Japan should pause for a while after the adjustments are made in order to study the possible effects of any changes.

Sakurai shares the view of most observers that Kuroda will no longer go for policy tightening. The decision in September to keep part of the Covid funding program in place until March indicates that there is no intention to change policy until then, including a change in the easing trend in its forward guidance on rates.