Like a sieve: Ueda leaving the BoJ’s headquarters in Tokyo. Japanese media have been getting the jump in releasing information about decisions by the central bank. — Bloomberg
THE Bank of Japan (BoJ) is often accused of being a laggard. When it comes to releasing details of its policy meetings, however, it’s jumping the gun.
More than 12 hours before Tuesday’s decision was officially announced, reports in the media indicated that the central bank was preparing another tweak to the yield-curve control (YCC) – a leak that proved to be substantiated.
In fact, the fourth estate now looks like the preferred method of disseminating the bank’s increasingly complex decisions. In three of the five meetings since governor Kazuo Ueda took over earlier this year, substantial details of steps the monetary policy board was set to make have appeared first in media reports, even as those deliberations were still in session.
Indeed, every time Ueda has announced something – from the change to forward guidance in April, to tweaks to the YCC in July and now in October – that information has appeared initially not in the public domain, but in the pages of the Nikkei newspaper.
This isn’t a trivial matter – this is about governance at the money centre of the world’s third-largest economy.
Central bank decisions can move billions of US dollars, and with the BoJ the closely watched outlier that it is, its conclusions have more impact than most.
Communications, once a peripheral part of setting monetary policy, have taken on heightened importance in the past two decades; this cloak-and-dagger practice of selective disclosure of sensitive information has no place in one of the world’s major central banks in 2023.
To be clear, the Nikkei pieces, and their timing, are worlds away from the curtain-raisers and scene-setters that frequently appear a week or days in advance of meetings of the US Federal Open Market Committee and other major central banks.
But these previews rarely contain the degree of specific reporting regularly seen from the BoJ, and they don’t land during the actual meeting. That’s what makes this situation unique.
Who can blame traders for reaching for the Nikkei, when the BoJ’s official forward guidance is so out of date? The centrepiece continues to be a stated preparedness to ease further if circumstances warrant.
The problem is that the BoJ has steadily moved away from the ultra-loose money that has characterised its approach for a decade. The option of further cuts reads like a template from the pandemic era that’s been copied from previous releases, and nobody at the bank has noticed.
Tuesday was a classic case: Forward guidance was unchanged, yet Ueda took a big step in removing the 1% hard ceiling on 10-year-bond yields. Long-term market rates have been allowed to rise higher since December.
We don’t know where the leaks are coming from. One suspicion is that they’re trial balloons, a way to get the market used to the idea that change is coming – the equivalent of British news anchors switching into black clothes before announcing the death of the Queen.
Such selective disclosure of potentially bad news to domestic publications has often been standard procedure for company boards and other Japanese institutions.
The alternative explanation is the revelations are coming from elsewhere within the bank, without knowledge from the top.
In a sense, it hardly matters: Either the BoJ has a communications problem or a security one. Does the bank really want to be in the situation where, when it finally announces it’s abandoning negative rates, that information filters out through the local media rather than in an official announcement?
If there is a deliberate policy of leaking, it also seems to be backfiring. The BoJ delivered a more hawkish turn than most had predicted before the meeting began.
But after the Nikkei report, traders appear to have expected a more radical change than was delivered – perhaps a cap in the 10-year yield of 1.5% – and therefore interpreted the ambiguous wording delivered by Ueda on Tuesday as a dovish move.
That led the yen to weaken after the decision officially hit, further raising the risk that Japan will have to intervene.
The disclosure of non-public information isn’t a risk-free exercise, and the repercussions can be significant.
An investigation into the unauthorised disclosure of sensitive US Federal Reserve (Fed) information to Medley Global Advisors ran for years and drew in the Federal Bureau of Investigation. The saga led to the resignation of Richmond Fed president Jeffrey Lacker in 2017, though he suggested his role was limited to confirming information a Medley analyst already possessed.
The point is there are consequences. In New Zealand, the early dissemination of a surprise rate cut in 2016 led the central bank to commission Deloitte to conduct a forensic review.
The conclusion was that a journalist sent information from a media lockup before an embargo was lifted, knowledge which was then relayed to a blogger. The result was that the Reserve Bank of New Zealand cancelled media lockups – for the innocent as well as the transgressor.
Indeed, the BoJ itself has prior history. In January 2016, just minutes before the official announcement, the Nikkei reported from inside the meeting that the bank was on the verge of introducing negative rates – something that then-governor Haruhiko Kuroda had only recently denied.
That leak was such a bombshell that the BoJ conducted an official investigation into how the information got out early. It didn’t find much, though given that the meeting was, unusually, briefly adjourned so that the finance and economic ministers could be briefed, there are several places outside the BoJ that the information could have come from.
Reversing that 2016 decision to introduce negative rates, if and when it comes, is just one of the big decisions that lies ahead for the BoJ.
It’s bad enough that the bank, alone among developed-market peers, doesn’t even give an official release time for its decision – it shouldn’t also make the world wait up, refreshing the Nikkei website, while information is selectively disclosed.
Questions should be asked of these successive leaks before greater damage is done. — Bloomberg
Gearoid Reidy and Daniel Moss are Bloomberg Opinion columnists. The views expressed here are the writers’ own.
