Featured in this podcast are Hiroshi Ugai, Takafumi Yamawaki, and Benjamin Shatil. While other DM CBs are approaching liftoff, the BoJ will lag in the exit from easy monetary policy, reflecting that only Japan has no clear way to achieve 2% inflation target. That said, the inflation outlook is highly uncertain and the difference in policy direction between the BoJ and other DM CBs may move the financial markets. Under such conditions we discuss whether the BoJ has the possibility to start the process toward the exit, what would be the policy sequence toward the exit, and how it would impact markets. To conclude in advance, adjusting to YCC may come in 2023 as a risk scenario, while the hurdle for liftoff would be much higher. The next governor may put less weight on achieving the target, thereby advancing the move toward the exit. In a plausible risk scenario of adjustment to YCC the BoJ could allow the 10yr JGB yield to rise to 0.15%-0.30% in 2023, implying 1%-2% lower fair value for USD/JPY. Other scenarios with much lower probabilities would accelerate the rise in 10yr JGB yield and the decline in USD/JPY.

This podcast was recorded on Feb 3, 2022.

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