“The second half of next year is (the) possible timing for when the Bank of Japan will end its negative interest rate policy,” said former Bank of Japan board member Takahide Kiuchi (pictured here in 2017).

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Japan’s central bank may delay any changes to its monetary policy in light of the turmoil the Silicon Valley Bank crisis has unleashed on financial markets, a former board member told CNBC.

And any changes to its ultra-dodgy stance could be delayed by as much as a year, the Nomura Research Institute economist said Takahide Kiuchiwho sat on the Board of the Bank of Japan from 2012 to 2017.

Kiuchi earlier expected incoming governor Kazuo Ueda to speed up the BOJ’s normalization of monetary policy — including widening its current yield curve steering policy to keep Japanese government bond yields around 0% and removing the negative interest rate it has held since 2016.

That is no longer the case.

“I think the new governor’s monetary policy may be affected by financial market conditions if the current instability in financial markets continues,” Kiuchi said in an interview with CNBC.

“The second half of next year is (the) possible time when the Bank of Japan will end its negative interest rate policy,” he said.

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Outgoing Bank of Japan Governor Haruhiko Kuroda, in his final meeting earlier this month kept its interest rates at -0.1% and stuck to the central bank’s 2% inflation target and its plan to keep the yield on its government bonds around 0%.

The Fed factor

Kiuchi emphasized that the Fed’s next move would remain an “important factor” for the Bank of Japan’s path forward.

“If the U.S. economy slows significantly, causing a rate cut by the Federal Reserve Board, the BOJ’s normalization may have to be significantly delayed,” Kiuchi said.

Kiuchi still expects to see the Bank of Japan widen its yield curve tolerance range within this year – he expects the range to widen from 50 basis points to 75 or 100 basis points as early as June.

“Now that the JGB is low … if these conditions continue, I think the BOJ may extend the upper limit,” he said.

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More flexibility?

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The central bank’s board expressed dissenting views on the current policy, minutes from its policy meeting in January showed.

One member “expressed the recognition that it was appropriate to continue monetary policy easing at this time, although it was necessary to examine and assess the balance between positive effects and side effects at some point in the future,” minutes showed.

However, another member said that “it was inappropriate to rush to exit the current monetary policy as foreign economies were currently heading for downturns.”