This time, Japan keen to learn from Fed's policy exit

Sun Sep 15, 2013 5:14pm EDT
 
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By Leika Kihara

TOKYO (Reuters) - As markets tune into how the Federal Reserve is going to rein in its massive stimulus program, so is the Bank of Japan.

The BOJ, the pioneer of so-called quantitative easing, is still years away from tapering off its own extraordinary stimulus program so it has the luxury of watching the U.S. central bank go first.

But the more that the BOJ is able to push inflation towards its policy target of 2 percent - compared with less than 1 percent now and following years of deflation - the more attention financial markets will pay to how Japan's exit debate is shaping up. For now, all eyes are on the Fed.

It is widely expected this week to announce a trimming of its $85 billion bond-buying program, a delicate operation of communicating its plans to fickle investors without causing financial market turmoil. Those market expectations have already led to an emerging market rout this year.

"The difficulty of exit is already proven by the Fed," said a source familiar with BOJ thinking. "Just hinting about tapering has jolted markets, probably much more than the Fed had thought."

So the BOJ plans to learn as much as it can from its U.S. counterpart although internal discussions among policymakers are underway on Japan's own exit strategy.

Indeed, conversations with former and incumbent central bankers, as well as sources familiar with the BOJ's thinking, suggest Japan's exit strategy will resemble the Fed's plan.

STAGE ONE   Continued...