BOJ policymaker rules out stimulus withdrawal even after economy recovers

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TOKYO (Businesshala) – The Bank of Japan should maintain its massive stimulus even when the economy is hit hard by the pandemic, board member Asahi Noguchi said, reinforcing expectations that the country will be in a crisis-mode policy. Will lag behind in withdrawing the measures.

FILE PHOTO: A man stands in front of the Bank of Japan’s headquarters in Tokyo, Japan, May 22, 2020. Businesshala/Kim Kyung-hoon/File photo

Noguchi sounded cautiously optimistic on Japan’s economic outlook during a speech on Thursday, saying its recovery from the end of the year will become clearer as the vaccine rollout helps mitigate the effects of the COVID-19 pandemic.

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But Japan’s low propensity inflation means that reopening the economy is unlikely to increase wages and inflation in other advanced countries, he said.

“As a result, rolling back monetary easing by other central banks will not be an option for the BOJ,” said Noguchi, one of the advocates of aggressive monetary easing on the nine-member board.

If economic recovery fails to raise wages and create jobs as expected, the BOJ may need to provide incentives, Noguchi said at a news conference after delivering the speech.

Japan’s economic recovery has been led by strong exports, but months of coronavirus restrictions have dented consumer demand, weighing on the outlook.

Meanwhile, years of over-lax policy have failed to boost inflation as weak consumption prevents firms from charging more for their goods and services, keeping inflation well below its 2% target.

Noguchi also said that the central bank may have “no choice” but to extend the current March deadline for a pandemic-relief loan program until it is clear that economic activity is pre-emptive. Will return to the COVID level, he said.

“Even if the BoJ were to end the program, it should do so in a way that does not hinder its efforts to achieve its 2% inflation target,” Noguchi told the news conference.

Japan’s wholesale inflation rose to a 13-year high in September on rising import costs, but analysts doubt this will push up Japan’s consumer prices. Core consumer inflation was flat in August compared to the previous year, reinforcing expectations that the BoJ will keep monetary policy favorable for some time.

“What is most notable in today’s speech is that Noguchi suggested that Japan is different from other countries that face rising inflation,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

“It is true that global inflation was on the G20 agenda, while Japan is mired in deflation. As such, Noguchi indicated that there is no urgent need to change monetary policy.”

Under a policy dubbed Yield Curve Control (YCC), the BOJ dictates short-term interest rates at -0.1% and 10-year bond yields at around 0%. It also buys government bonds and riskier assets to achieve its elusive 2% inflation target.

Reporting by Tetsushi Kajimoto and Leika Kihara; Editing by Stephen Coates and Ana Nicolasi da Costa

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