(Bloomberg) -- The Bank of Japan will gradually build a case for a major overhaul of its stimulus framework in the second-half of next year, using the results of a review to support its move, according to Bloomberg Economics.
Governor Kazuo Ueda is aware that the current yield curve control stimulus framework is unsustainable, as it distorts prices, lacks flexibility, needs big purchases of government bonds and leaves the yen vulnerable to speculators, BE’s Taro Kimura wrote in a report released Tuesday.
But from Ueda’s experience as a board member who voted against a premature rate increase in the early 2000s, the governor is also wary of abandoning stimulus too quickly, Kimura wrote. He will instead use the review to support a case for ambitious change after a modest start at the helm, he said.
“We think the least-bad option for Ueda is to restore the Overnight Call Rate as the policy rate and anchor it at zero, and continue quantitative easing — but with a reduced amount of JGB purchases,” Kimura said in the report, referring to BE’s baseline scenario.