Photo/Illutration Bank of Japan Governor Kazuo Ueda meets reporters at the central bank's head office in Tokyo's Chuo Ward on Oct. 31, 2023. (Asahi Shimbun file photo)

Following its actions in July, the Bank of Japan on Oct. 31 decided to pursue more flexible monetary easing.

It is good that the central bank is tweaking its ability to respond promptly to changes in domestic and overseas economic and financial situations.

With a continued upside shift in price outlook, the BOJ needs to further discuss, and explain to the public, how it intends to proceed to the “exit” of its large-scale monetary easing policy and the consequences.

In July, the BOJ allowed a wider fluctuation in long-term interest rates, capped at 1 percent, up from 0.5 percent.

But now, the 1 percent is defined as more of a loose “upper bound” than a rigid cap, which spells greater flexibility.

Explaining this readjustment after only three months, BOJ Governor Kazuo Ueda said the biggest reason was the unexpectedly steep rise in U.S. long-term interest rates.

The consumer price outlook has been revised upward to 2.8 percent for fiscal 2023 as well as fiscal 2024, and to 1.7 percent for fiscal 2025.

However, the BOJ is not changing the overall framework of its ultra-loose monetary policy, saying it still does not know when it will be possible to achieve its target of a stable and sustainable “2-percent increase” that is accompanied by rising wages.

To be sure, the current high cost of living owes considerably to the skyrocketing prices of energy and other imports that are being shifted onto retail prices.

Whether the positive cycle of wages rising along with the prices of goods can be realized depends, among other things, on the outcome of next year’s so-called spring labor offensive, which is still too early to predict.

Other factors that also require close watching include the possible downside as well as upside shifts in prices.

However, if the BOJ’s latest projections prove correct, rising prices, including last fiscal year’s number, will have considerably exceeded the 2-percent target for three years in a row.

Along with the growing public awareness for the need to phase out the large-scale easy monetary policy, the BOJ will be required to pay closer attention to changes and react speedily.

We can appreciate the BOJ’s latest loosening of its grip on long-term interest rates as a sign of its preparedness to deal with such challenges.

However, it is difficult to understand the logic behind maintaining the target rate at “around 0 percent” and simultaneously permitting fluctuations exceeding 1 percent.

This suggests an expansion of the BOJ’s discretionary powers. The central bank must strive even harder to fully explain its policy to the public while maintaining operational transparency.

The BOJ also needs to clarify every specific measure it intends to take on its way to the exit from the ultra-loose monetary policy.

In addition to how policy adjustments are made, what effects are expected on the BOJ’s finances and the financial markets as well as the lives of the public?

During the governorship of Haruhiko Kuroda, Ueda’s immediate predecessor, discussions and explanations were withheld because it was considered “too early” to address such issues.

In late September, when Ueda gave a lecture in which he discussed the impact of shrinking the scale of monetary easing on the BOJ’s finances, he noted to the effect, “This is the perfect time for discussing the matter objectively because there is still some distance to the ‘exit.’”

We hope that he will proceed swiftly with the necessary discussions so as not to miss the correct timing.

--The Asahi Shimbun, Nov. 1

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