MAEBASHI, GUNMA PREF. – A Bank of Japan policymaker warned Thursday that the central bank’s decision last October to ease monetary policy further would increase the risk of undermining economic and price stability in the long term.
Takahide Kiuchi, one of four Policy Board members who opposed the central bank’s additional monetary easing, said his decision reflected his concern that the side effects would “outweigh the positive effects.”
“This would heighten the risk of undermining economic and price stability in the long run,” he said in a speech in Maebashi. “I judged that the accompanying positive effects would not be worth the costs and side effects.”
Kiuchi said increasing the pace of government bond purchases by the BOJ will raise concerns about “a higher potential risk that such a move will be perceived as effectively financing fiscal deficits.”
He added that greater attention should be given to “a risk that the mechanism of maintaining fiscal discipline through interest rates will be impaired, reflecting overly heightened expectations” that the BOJ’s bond purchases will ensure the market’s stability.
The Policy Board was split in making the decision on Oct. 31 to expand its asset purchase program, with four of the nine members opposing the additional easing. Gov. Haruhiko Kuroda and his two deputies voted for easing.
To achieve the BOJ’s inflation target, Kiuchi called for continuous efforts by a wide range of economic entities to strengthen the economy’s growth potential.
“I hold the view that, even if such efforts proceed smoothly, it will require considerable time for the target to be achieved,” he said, adding that it is desirable to have a flexible time frame for attaining the target.
The BOJ currently expects to achieve its 2 percent inflation target in or around fiscal 2015.
On the outlook for prices, Kiuchi said the pace of inflation is likely to remain moderate, given the slow pace of price increases in items not susceptible to the decline in crude oil prices, while real wage improvements are also expected to proceed slowly.
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