KOFU, YAMANASHI PREF. – A Bank of Japan policymaker said Wednesday it appears to be becoming more difficult for the central bank to implement its large-scale monetary easing, citing the limited effects of additional easing steps introduced last October.
“The market’s outlook on economic activity and prices has actually been revised downward, and therefore there is a lack of persuasive evidence of a further rise in inflation expectations,” Takehiro Sato said in a speech to business leaders in Kofu, Yamanashi Prefecture.
Though the Bank of Japan’s monetary easing is intended to put downward pressure on nominal interest rates across the entire yield curve through massive government bond purchases, such an effect has been “diminishing gradually” due mainly to reduced demand from investors to purchase bonds amid already low interest rates, he said.
“It appears to me that the degree of difficulty in implementing QQE (quantitative and qualitative easing) is rising,” said Sato, who with three other policymakers voted against the nine-member Policy Board’s decision to expand aggressive monetary easing last October.
But he said the underlying trend in inflation is being “firmly maintained” and the Policy Board has judged that no policy actions are necessary at this point.
On the bank’s commitment to achieving an inflation target of 2 percent in about two years since it launched the easing measures in April 2013, Sato said it is “a nonbinding target” and that a delay in the timing of reaching the goal “would not be the essential problem.”
Meanwhile, Sato called on the government to steadily promote measures to pursue fiscal health with a view to ensuring the credibility of the country’s fiscal management, as the government plans to draw up a fiscal reform plan by the end of this month.
“Once market participants have concerns about fiscal discipline, controlling long-term interest rates will become difficult, even for the bank,” Sato said.