End of Monetary Policy Easing of Japan Triggers a Rate Hike

There is a need to take into consideration of Japan's central bank monetary policy banking system and changes in the economy would induce a rate hike in the target rate of the bank. This gives the strongest signal to leave the crisis situation in the stimulus program.

Although it is too early to have a discussion over this, the Bank of Japan would center on how to end the quantitative easing without unsettling the financial market.

The current shape of the yield curve is deemed to be “appropriate” by the central bank although this is still relative to the stand of the economy and how the prices changes. The decision of the BOJ in policy easing would also have an effect on this.

It is necessary for both near-term and long-term target rates to be in line with the changes to create a yield curve that is right. The BOJ now concentrates on when to step back instead of bringing up the game for the massive stimulus program.

Based on the policy framework last year, the short-term interest rates is now at minus 0.1 percent and the 10-year government bond yield around zero percent.

Kuroda said that the BOJ is mainly considering the effect of ultra-easy monetary policy on gains of financial institutions regarding its decreasing margins, especially the regional banks that lack demand funding in a declining population.“Both financial and price stability are important policy mandates for the BOJ,” Kuroda stated as he talks about the BOJ’s target price other than the policy effect on the banking system.

Kuroda also said that it is too early to talk about this and the process to follow to end the stimulus program. Moreover, this would put pressure on the market as it gives uncertainty to the people.

The BOJ has the appropriate tools and capability to come up with a smooth exit from the quantitative easing. He emphasized that discussing the exit from quantitative and qualitative easing is significant as it is connected with the future communication and markets.

However, even if the economy has shown to be progressing, consumer prices in Japan remained to be weak and below the 2 percent inflation target. Consequently, the survey showed that the BOJ is presumed to begin loosening their stimulus program until late 2018 or later than that.