After the ‘bazooka’, Bank of Japan dismantles the work of its radical chief

TOKYO, Sept 13 (Reuters) – After years of shock-and-awe stimulus, the Bank of Japan is quietly rolling back radical policies introduced by its bold chief Haruhiko Kuroda and pioneering controversial new measures that blur the lines between central banking and politics.

The unwinding of Japan’s complex policy is driven by Deputy Governor Masayoshi Amamiya, insiders say, a career central banker considered the top contender to replace Governor Kuroda whose term ends in 2023.

Amamiya and his top lieutenant Shinichi Uchida have worked behind the scenes to make Kuroda’s complicated policy framework–a product of years of unsuccessful attempts to revive stagnant consumer prices–more manageable, and eventually return Japan to more normal interest rate settings, even as the economy struggles with the pandemic. read more

The BOJ’s dwindling monetary options mean the two ambitious technocrats are instead pushing the bank into schemes bordering on industrial policy, such as those designed to encourage bank sector consolidation and green finance. read more

The most decisive and latest swing in policy direction, though not formally communicated, came in the BOJ’s March meeting when it announced it would no longer commit to a fixed programme of risky asset purchases, an inconspicuous sign it was slowing its monetary support. read more

“With the March move, the BOJ laid the groundwork for an eventual policy normalisation,” said a close associate of Kuroda with knowledge on the central bank’s policy deliberations.

This account of events around the March meeting is based on interviews with more than two dozen incumbent and former central bank and government officials, ruling and opposition lawmakers and academics with direct or indirect knowledge of monetary policy decisions. The BOJ declined to comment for the story and declined a request by Reuters for interviews with Amamiya and Uchida.

“The current stimulus can’t stay forever and must be rolled back at some point,” said a former BOJ policymaker who was involved in the March decision. “That’s always in the mind of career central bankers.”

Officially, the change in March was aimed at extending the lifespan of stimulus policies championed by Kuroda, the man once seen as a bold visionary who could shock the economy out of deflation with his “bazooka” asset-buying programme.

However, insiders say there was another motive: to pave the way for an eventual retreat from these very policies.

While that intention was hidden from markets, it would mark a symbolic end to Kuroda’s bold experiment based on the text-book theory that forceful monetary action and communication can influence public price expectations and drive inflation higher.

“It’s as if the BOJ is trying to prove itself by doing something new all the time,” said former BOJ deputy governor Hirohide Yamaguchi. “What’s become clear is that the BOJ can’t affect and mould public mindset like jelly.”

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