The Bank of Japan could further ease monetary policy by buying riskier assets using its current program, one of the central bank’s policymakers said.
Takahide Kiuchi, who was appointed one of the nine seats on the BOJ’s Policy Board in July, also said he would not exclude the possibility of the bank lowering its inflation forecasts in its upcoming economic outlook report.
The comments bolster the view that the BOJ will continue stepping up its battle against deflation. Last week it surprised the markets by downgrading its economic view and bolstering its monetary easing efforts.
“I don’t think (the BOJ) will shift to a policy that is completely different from the current one,” Kiuchi said in an interview Tuesday. “We still have room to implement monetary easing when necessary in the future, including purchases of riskier assets, in addition to purchases of long- and short-term government bonds.”
Under a program it began in 2010, the BOJ is buying up bonds and investing in riskier real estate investment trusts (REITs) and exchange-traded funds (ETFs) offered by domestic banks to boost the liquidity of the banking system and support the economy.
At its latest policy meeting on Sept. 19, the board decided to increase the size of the asset-purchasing program to about ¥80 trillion from ¥70 trillion, by making additional purchases of government bonds and short-term bills.
Kiuchi, formerly chief economist at Nomura Securities Co., said the BOJ could ensure the further effectiveness of the program through measures such as buying longer-term government bonds or riskier assets.
While pointing to the limit on the BOJ’s holdings of REITs and ETFs, given the need to prevent the bank’s balance sheet from deteriorating, Kiuchi said, “It is not that we have no more room” for continuing to buy riskier assets.
Kiuchi appeared reluctant to support a proposal for the BOJ to start buying foreign government bonds, an option supported by some lawmakers and economists who say it would help to stem the sharp appreciation of the yen because a massive amount of yen funds could be sold in the process.
“We have not envisioned (such a policy) under the Bank of Japan Act,” Kiuchi said, stressing the bank will not take any policy measures aimed at directly affecting foreign exchange rates. He added that even if the law is revised, doubt remains that a policy of buying foreign bonds would be as effective as intervening directly in the markets to slow the yen’s rise.
With the BOJ set to release a semiannual economic outlook next month, Kiuchi would not exclude possibilities the bank may downgrade its inflation projection.
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