BOJ making preparations for exit from current policy: Ito

November 2, 2017

TOKYO-The Bank of Japan are effectively making preparations for a future exit from its current massive monetary easing policy, Columbia University Prof. Takatoshi Ito has said.

"Preparations to go to the exit have already started," Ito said in a forum in Tokyo on Wednesday, noting a slowdown in the pace of the BOJ's Japanese government bond purchases conducted under the policy.

But he predicted that the normalization of the BOJ's unconventional monetary policy will not be discussed for the time being, until Japanese inflation rises to one pct or higher.

On the BOJ's target of guiding 10-year JGB yields to around zero pct, Ito said rises in long-term rates will come onto the horizon if the Japanese economy grows stronger on a weaker yen spurred by an increase in interest rate differentials between Japan and the United States.

The BOJ "will be able to enter an exit around 2019" if the country's inflation approaches the bank's target level of 2 percent during fiscal 2019 as currently projected by the BOJ, Ito said.

Ito warned against lowering the inflation target, citing expected negative effects such as a rise in the yen and economic weakness. "It does not always have to be 2 percent, but it is important to make people believe that 2 percent will be achieved eventually," he said.

Ito brushed aside concerns that the BOJ may incur massive losses during the exit process. The losses would not be big if the monetary policy normalization, which will involve a balance sheet reduction, is carried out slowly. Jiji Press