Is the Bank of Japan Ushering in a New Era of Transparency?

japan-carpAnalysts following the Bank of Japan’s statements over the past few weeks have noticed a big change in how the central bank is positioning its role within the struggling economy.

While surprise accommodation measures worked for the bank in the past, their effect has worn thin this year. In response, the bank’s Governor, Haruhiko Kuroda, is changing tactics.

From Bloomberg:

Delivering unexpected policy decisions might have added potency to easing early on in the Kuroda era, when the main tool was simple asset purchases, said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo. Stocks jumped and the yen slid when Kuroda unveiled his first, greater-than-anticipated, stimulus in April 2013 — and did so again when the board, against forecasts, doubled down in October 2014.

Leaving markets without guidance did the BOJ no favors in December, however, when equities tumbled and the yen jumped after a complicated tweak to the stimulus program that at first appeared to be an acceleration in easing.

Many analysts have pointed out that negative rates are hurting Japan’s private banks. What’s more, one of Prime Minister Abe’s most trusted economists recently expressed doubt that the Bank of Japan’s rate and stimulus measures were having any positive effect at all.

Kuroda and Deputy Governor Hiroshi Nakaso separately last week highlighted both costs and benefits of the BOJ’s policies, using similar language. They provided analysis on the negative-rate tool and why bond yields fell more than anticipated, along with a recognition of the danger of too-low long-term rates damaging confidence.

“The BOJ communication strategy has totally changed in the past several weeks,” said Kanno, who used to work at the BOJ. “They don’t want to surprise the market anymore.”

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Whether the new policy will help boost economic growth is yet to be determined. The iShares MSCI Japan ETF (NYSE:EWJ) closed down $0.20 (-1.60%) to $12.33 per share on Friday. The largest U.S.-listed ETF focused on Japanese equities has risen a modest 1.73% year-to-date.