The SVB crisis may prompt the Bank of Japan to delay policy changes, says former board member

Japan’s central bank could delay any changes to its monetary policy in light of the turmoil that the Silicon Valley Bank crisis has triggered in financial markets, a former board member told CNBC.

And any changes to its ultra-dovish stance could be delayed by as much as a year, said Nomura Research Institute economist Takahide Kiuchi, who served on the Bank of Japan’s policy board from 2012 to 2017.

Kiuchi previously expected that incoming governor Kazuo Ueda would accelerate the BOJ’s normalization of monetary policy — including widening its current yield curve control policy to maintain the yield on Japanese government bonds at around 0% and removing the negative interest rate that it’s kept since 2016.

That’s no longer the case.

“I think that the new governor’s monetary policy could be affected by the financial market conditions if the current instability of the financial markets continue,” Kiuchi said in an interview with CNBC.

“The second half of next year is [the] possible timing for when the Bank of Japan will end its negative interest rate policy,” he said.

Bank of Japan’s outgoing governor Haruhiko Kuroda, in his final meeting earlier this month, maintained its interest rates at -0.1% and stood by the central bank’s inflation target of 2% and its plan to keep the yield on its government bonds at around 0%.

Kiuchi stressed that the next steps from the Fed would remain an “important factor” for the Bank of Japan’s path forward.

“If the U.S. economy slows significantly, which causes a rate cut by the Federal Reserve’s board, maybe the BOJ’s normalization has to be postponed significantly,” Kiuchi said.

Kiuchi still expects to see the Bank of Japan widening its tolerance range for its yield curve within this year — he expects the range to be widened from 50 basis points to 75 or 100 basis points as early as June.

“Now that the JGB is low … if these conditions continue, I think the BOJ may expand the upper limit,” he said.

The Japanese yen weakened past 150 against the U.S. dollar last October with widening rate differentials between the U.S. Federal Reserve’s hawkish stance and the Bank of Japan maintaining negative interest rates.

The central bank’s board voiced dissenting opinions over the current policy, minutes from its January policy meeting showed.

One member “expressed the recognition that it was appropriate to continue with monetary easing at this point, although it was necessary to examine and assess the balance between positive effects and side effects at some point in future,” minutes showed.

Another member, however, said “it was inappropriate to rush to an exit from the current monetary policy because overseas economies were currently heading toward slowdowns.”