Odaily, citing Jinshi, reported that Deutsche Securities believes the Bank of Japan is now at a “critical communication crossroads.” According to the firm, the central bank needs to decide whether to keep its existing forward-guidance language unchanged or adjust the way it describes the degree of monetary easing in its policy communication.
The issue highlighted by Deutsche Securities centers on the link between the BOJ’s rate path and its policy wording. If the Bank of Japan continues to use its current language and later raises interest rates to 1.25%, it would face a new challenge: explaining the rationale for additional rate increases while still describing monetary policy as accommodative.
Deutsche Securities also noted that the lower end of the BOJ’s estimated nominal neutral interest rate range is around 1.1%. With the policy rate already at 1%, that level is very close to the lower bound. As a result, if rates move above 1.1%, it would become difficult for monetary policy to continue being described as having an easing nature.