The BoJ has sprung a leak – investigation due
THE Bank of Japan (BoJ) needs a new plumbing unit.

By the time it announced the momentous overhaul of monetary policy last Tuesday afternoon, nobody cared. Everyone knew already what it would do, in excruciating detail.

That’s because selective information disclosure has been one of the defining features of the bank since governor Kazuo Ueda took over last year.

Since then, every major change has been reported in advance, in significant detail.

But even by that unflattering standard, the level of spillage from the closely watched March meeting was scandalous.

First, a steady buildup of reports signalling change appeared in domestic media before the meeting began – though, notably, after the bank is supposed to have entered its blackout period in which it pledges not to disclose information outside the bank, except to answer questions in parliament.

Then, at 2am Japan time on the second day of the meeting, the Nikkei newspaper said the bank had decided to end negative rates, yield-curve control and stock-fund purchases.

That was compounded the next morning, when midway through the meeting itself, national broadcaster NHK reported that Ueda had tabled those changes for a vote.

Surprise, surprise, once the statement hit, it contained no new information. If reporters in the domestic media were guessing, they should start doing the lottery.

Japan officials talk a lot about “normalisation” of monetary policy, an unhelpful buzzword in a country where rates are still at zero. But if the country wants to be taken seriously, it must start with this.

It’s time to hold an inquiry into why so much of the bank’s decisions are known in advance, and for Prime Minister Fumio Kishida to demand some answers.

These steps move billions of dollars. If they are known to journalists from Nikkei, Jiji and NHK beforehand, who else is learning about them? The potential for misuse is staggering. Don’t take our word for it.

“If the results of the monetary policy meetings are reported immediately before they are announced, it could have a disruptive effect on financial markets and lead to other extremely undesirable situations,” said the BoJ itself, in a 2016 statement investigating how the introduction of negative rates was leaked. There was no conclusion on that one, either.

The BoJ is far from the only central bank that has been challenged on the security front. But the consequences of slip-ups elsewhere are real.

The Federal Reserve (Fed), often seen as the gold standard, has been involved in its share of mishaps. These have gone beyond questions of what news service got what incremental scoop – some of them were shocking in their ethical lapse.

They’ve also had real-life consequences, ranging from internal investigations to a probe by the Federal Bureau of Investigation. People have lost their jobs.

In a spectacular own goal, some of the world’s largest banks got an early look at minutes of the Federal Open Market Committee’s (FOMC) March 2013 meeting.

Citigroup Inc and JPMorgan Chase & Co were among firms on an email list, along with Capitol Hill staff and trade groups, that received the document 19 hours before the public. The lapse caused a furor.

“The Fed’s controls over its sensitive, market-moving information are just too weak,” Dennis Kelleher, president and chief executive officer of Better Markets Inc, a non-profit Wall Street watchdog, told Bloomberg News at the time.

“The fact that it could happen at all is inexplicable.”

Perhaps the most embarrassing revelations in recent years came from FOMC members own trading activities during the pandemic, at a time when the Fed was rolling out massive stimulus.

Eric Rosengren, president of the Boston Fed, and Robert Kaplan, head of the Dallas Fed, left the central bank after disclosures that they purchased stocks while the Fed was buying a wide range of assets to support the economy.

Then Fed vice-chairman Richard Clarida resigned a few weeks before the end of his term after revelations about his buying and selling in the lead-up to a major Fed policy shift in early 2020.

Subsequent investigations cleared the men of legal wrongdoing. That’s insufficient for a key lawmaker with oversight of the Fed.

“I urge the board to implement substantive penalties for Fed officials that engage in prohibited market trading activity,” Sherrod Brown, chair of the Senate Banking Committee, wrote in a letter to Fed chief Jerome Powell last month.

In positions this prominent, it’s important to avoid even the appearance of impropriety.

Some have previously argued the information was being leaked to undermine Ueda, though we don’t believe that is the case.

One alternative hypothesis is that these are a necessary evil, coordinated trial balloons to let markets know in advance what is coming and avoid gyrations.

In reality, all they do is extend the chaos for days, and make it impossible for traders to know when and how to position.

And if Ueda wants to give markets a heads-up, he has ample opportunity: No other major central bank governor spends as much time talking in parliament.

Along with scheduled speeches from policy board members, that’s the appropriate place to discuss policy – in front of cameras, not behind closed doors.

The BoJ claims to take this issue seriously. “We have established strict rules for information management,” deputy governor Shinichi Uchida said in parliament in December, asked about the leaks.

What, then, is being done about it? Will there be an investigation into this episode, as there was in 2016?

Ueda did not seem overly concerned last Tuesday. Asked if the leaks were intentional communications to tip off the market, he punted. “My understanding is that each publication reports their own views, based on the information that myself and others have disclosed,” he said.

There were 13 people in attendance at last week’s meeting. And perhaps it’s true, as Benjamin Franklin wrote, that three can keep a secret, if two of them are dead.

But other central banks don’t seem to suffer leaks on anything approaching this scale.

That suggests it’s a problem that Japan needs to tackle. For a country whose lax information security is one reason it’s being kept out of intelligence-sharing groups like Five Eyes, it should be a concern for those at the top. — Bloomberg

Gearoid Reidy and Daniel Moss are Bloomberg Opinion columnists. The views expressed here are the writers’ own.
Banking,Bank of Japan,leak,policy
THE Bank of Japan (BoJ) needs a new plumbing unit.