BOJ should ease further, says Abe adviser Honda



The Bank of Japan should use a combination of a more-negative benchmark rate and enlarged asset purchases “sometime, before long” to help the economy, according to Etsuro Honda, an adviser to Prime Minister Shinzo Abe.

“But maybe not next week,” when the BOJ next meets to decide policy, Honda, 61, said in a phone interview Thursday. “The BOJ is carefully watching the reaction from market participants” from its announcement of negative rates in January, “so another round of monetary policy expansion will take place a bit after that.”

The unexpected move to charge commercial banks for a portion of the cash they park at the central bank roiled financial markets and continues to reverberate through the money-market industry. While lower rates would typically cause a cheaper currency, instead the yen has climbed — by 4.5 percent against the dollar, contributing to a drop in Japanese stocks. The shift has made it cheaper for Japan to borrow, with 10-year government bond yields now negative at auction out to 10-year maturities.

The market volatility comes as revised data this week confirmed the world’s third-largest economy contracted in the final quarter of 2015, underscoring growing concern that Abe’s reflation program is falling short of expectations. Consumer spending is dragging down growth, declining 0.9 percent in the October-to-December quarter from the previous three months.

Honda, who called for the BOJ to add stimulus before its January meeting, hinted at the possibility of a freeze on the current sales-tax rate of 8 percent, after last month saying the planned increase to 10 percent in April 2017 should be pushed back until 2019. The last hike in 2014 tipped the economy into a recession, and BOJ Governor Haruhiko Kuroda told parliament Thursday that its impact was larger and lingered longer than expected.

“I’m so worried about the possible negatives of the next round of the consumption-tax hike,” Honda said. “I recommend that we should postpone or freeze the implementation of the tax hike.”

Some Bank of Japan officials are increasingly seeing a potential delay to the 2017 consumption tax increase as a good thing for reaching the central bank’s inflation target of 2 percent, according to people familiar with the discussions. This adds to signs the tide is turning toward a second delay to the tax hike — Abe previously delayed it from the original October 2015 timeline.

Honda, who also last month called for a stimulus package of about ¥5 trillion, said a supplementary budget is needed to tackle the nation’s stagnant consumption after discussions on the 2016 fiscal-year budget conclude this month.

He said the package should include infrastructure construction, assistance for child care and education, subsidies for science and technology development and payments to lower-income households.

  • solodoctor

    I am pleased to read that Mr. Honda called for a stimulus package recently. The BOJ cannot make much headway if it is working alone. It is long past due for Abenomics to implement it’s second and third arrows actively. Abe needs to take action in concert with the BOJ. Even then, the demographic and other challenges the economy faces will be daunting, to say the least. It will probably require a series of fiscal steps by Abe if any significant change is to take place.

  • montaigne1

    Better do some more easing, because there are no other arrows.