Japan ex-top finance official Nakao says BOJ adjustments will smooth change of governor

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The Bank of Japan (BOJ) has modified its stimulus measures to ease the transition away from an unconventional monetary policy when Governor Haruhiko Kuroda retires in April, former top currency diplomat Takehiko Nakao told Reuters in an interview.

Prolonged monetary easing has amplified side effects such as blunting market functions, excessive yen weakening and looser fiscal discipline, at the expense of increases in real income, said the former vice finance minister for international affairs.

"The BOJ has not succeeded so much in raising inflation expectations and bringing down real interest rates while side-effects became larger. I was thinking the current framework must be modified sooner or later," he said. Altering the BOJ's easy-money policy would cause shocks such as pushing up mortgage interest rates and JGB yields, but that needs be done at some point, Nakao said, also noting that the BOJ's 2% inflation target - stipulated in a government accord - may be making monetary and fiscal policy inflexible.

"The yen was too strong back then, but now the yen is clearly too weak," Nakao said, declining to specify preferred levels under current circumstances.

 

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