- Kazuo Ueda, who served as a BOJ policy maker from 1998 to 2005
Last month the IMF and the Fed urged the Bank of Japan to start tapering its stimulus programme. Japan's central bank's governor Kuroda has been surprisingly confident in the recent weeks. All these factors made some of the economists claim the central bank will more likely tighten its monetary policy rather than expand the stimulus.
According to Kazuo Ueda, a former BoJ member, the central bank faces a terrifying dilemma of inflation, which is forcing policymakers to tighten the monetary policy to support the domestic bond market. There is a 50%-50% chance the economy will reach the 2% within the planned period of time. Such a result can push the 10-year government bond yield above 3%. Meanwhile, bond market inflation expectations have soared to 1.36% from 0.94% seen in October. The unprecedented stimulus programme, under which the central bank buys around 7 trillion yen of bonds per month, helps to keep borrowing costs at the lowest level in the world. It is worth reminding that Japan has the world's heaviest debt ratio. However, during April's policy meeting Kuroda claimed the central bank will not proceed with buying bonds just to keep down the debt-servicing costs after the inflation rate climbs to 2%. The recent poll conducted by Bloomberg showed that six out of 28 experts believe the Bank of Japan will start tapering its stimulus programme in 2016.
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