By Leika Kihara
WASHINGTON (Reuters) – Aside from the mixed policy signals dropped during his trip to the International Monetary Fund and World Bank meetings in Washington, Bank of Japan Governor Kazuo Ueda offered a glimpse of how the central bank was doing some soul searching on ways to better communicate with markets.
The BOJ was blamed for amplifying a market rout in early August with its surprise interest rate hike in July, and Ueda’s comments pledging to keep pushing up rates if sustainable achievement of its 2% inflation target was foreseen.
While the direct trigger of the August sell-off was weaker-than-expected U.S. labor market data that fueled concerns the Federal Reserve should have started rate cuts earlier, the experience has led to discussions within the BOJ on ways to avoid future rate hikes from becoming a huge market surprise.
To be sure, BOJ officials had dropped signs of a chance of a July rate hike by saying the central bank would “adjust the degree of monetary accommodation” if inflation moved in line with its forecast.
But the signals did not resonate with many market players, who saw consumption as too weak to justify a hike.
For Deputy Governor Ryozo Himino, the problem was the BOJ’s ambiguous, technical language that proved hard for markets to digest.
“Communication is not about what we intend to convey, but about what actually reaches people’s mind,” he told a seminar in Tokyo earlier this month. “I remember being baffled by the ‘BOJ speak’ when I joined the bank a year and half ago.”
Reserve Bank of New Zealand Governor Adrian Orr seemed to agree, explaining how central banks “need to tell a story that people can understand.”
“They need to show empathy – seeing things through the eyes of many and speaking in plain language,” Orr said in a speech on Wednesday on the sidelines of the IMF meetings.
In the weeks ahead of July’s move, though, Ueda had no public events at which he could remind the financial press and markets of the BOJ’s basic policy strategy.
“There was a period in July where there were no communication, explicit or formal communication, between board members, and the market and media,” he said in a seminar at the IMF on Wednesday.
“Even though we may have said the same thing as we were saying in June, it could have been nice to speak a bit more in July,” he said, when asked what the BOJ could have done differently.
NO SILVER BULLET
Aside from the press briefings after the eight policy meetings held each year, the BOJ governor delivers speeches at set events roughly once every two-to-three months.