BoJ must couple easing with unwinding vision


TOKYO • The Bank of Japan (BoJ) needs a vision for eventually unwinding its massive asset purchases if it eases policy further, according to a former BoJ official.

“It’s becoming important for the BoJ to not simply say it is strengthening stimulus, but to plot the course of events, to tell the story of how these steps will lead to normalisation,” said Takashi Kozu, who held a wide range of positions at the BoJ and was a member of the Basel Committee on Banking Supervision from 2006 to 2010.

Simply pledging to strengthen stimulus is no longer enough to convince investors its price target will be met, according to Kozu, who was speaking amid concern that waning inflation could prompt the BoJ to increase stimulus, even as the side effects of policy mount. The BoJ has failed to achieve its 2% goal after six years of aggressive buys of Japanese government bonds and exchange traded funds (ETFs).

“The BoJ must paint a picture that includes an image of an exit,” said Kozu, who is now president of the Ricoh Institute of Sustainability and Business in Tokyo.

He suggested one way to show how it could unwind the open-ended ETF purchases would be to bundle them into some sort of investment trust or mutual fund that could be sold to financial institutions and pension funds.

“The BoJ needs to craft a narrative that turns the present unprecedented easing programme into something that matches the financial intermediary needs of the ageing society.” — Bloomberg