Ex-BoJ Deputy Governor Iwata calls for BoJ Stimulus Reduction

The leading candidate to replace current BoJ Governor Haruhiko Kuroda, Kazumasa Iwata, calls for BoJ Stimulus Reduction. What are the reasons for this suggestion?

9 August, AtoZForex According to the leading candidate to become the next Bank of Japan governor, Kazumasa Iwata, the BoJ needs to roll back its massive stimulus before the inflation hits the 2 percent target. Mr. Iwata appears highly concerned about the efficacy of the BoJ’s approach to curbing deflation in Japan.

Ex-BoJ Deputy Governor Iwata calls for BoJ Stimulus Reduction

The ex-BoJ Deputy Governor Iwata’s suggestion contradicts the central bank’s pledge to keep its stimulus program in place until the country hits the inflation target. Moreover, Mr. Iwata has criticized the BoJ’s price outlooks as too optimistic. He also warned that even reaching 1 percent inflation could be challenging. This is due to the recent data releases in Japan, which appeared quite weak.

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His remarks have fueled the concerns over the pressure that the BoJ’s ultra-easy policy puts on the country’s banks and financial market. Specifically, Mr. Iwata has stated:

"The BOJ should slow its annual bond buying to around 40 trillion yen ($362 billion) from the current 80 trillion yen. That would make its policy more sustainable.”

Iwata on Japan Inflation 

He further stated that the BoJ should slow down the purchases of government bonds and exchange-traded funds (ETF). He has added:

"Once it becomes clear inflation will stay around 1 percent, the BOJ should modify its long-term interest rate target. But even the road to hitting 1 percent inflation appears pretty tough, judging from recent data.”

He also proposed an alternative. His idea is to allow for a natural rise in long-term interest rates. Mr. Iwata believes this can be achieved by targeting five-year bond yields instead of the current 10-year yields. His outlook on the monetary policy is closely eyed since he is seen as one of the strongest candidates to replace Governor Haruhiko Kuroda.

Iwata’s comments appeared as a surprise to some of the market players. It is the first time he has expressed his views in relation to the BoJ strategy, suggesting that a hard inflation target might appear as an issue.

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