The Bank of Japan is still too optimistic about the time needed to achieve its 2 percent inflation target, given the country’s entrenched deflationary mindset, a former BOJ executive director said.
Any lack of progress toward that goal, though, is unlikely to trigger additional easing by the central bank because it has already adopted the strongest possible policy measures, said Kazuo Momma, an economist at Mizuho Research Institute who left the central bank in May.
Further easing is “not needed at all, not at all,” in the foreseeable future, he said in an interview with Bloomberg on Tuesday in Tokyo.
The BOJ this month pushed back its projected time frame for reaching 2 percent inflation to “around” the fiscal year starting in April 2018, beyond the current term of Gov. Haruhiko Kuroda, which ends in April of that year. It was the fifth time the central bank had pushed back the time frame since Kuroda launched unprecedented monetary stimulus in April 2013, saying the BOJ would aim to hit 2 percent inflation in about two years.
“I have to say the hurdle to meeting the target around fiscal 2018 is still somewhat too high,” said Momma, who was also the chief BOJ economist. “It will take a bit longer.”
In September, the BOJ shifted its policy framework to one targeting interest rates from expanding the money supply. The BOJ pledged to continue buying Japanese government bonds at “more or less the current pace” but said its purchases might fluctuate as it sought to hit its target for the 10-year yield, at around zero percent. This led some economists to call the new framework “stealth tapering.”
Momma said fluctuations in the BOJ’s bond purchases should be expected under the new framework, but cautioned that a limited decline in buying, particularly in the short term, shouldn’t be interpreted as “tapering,” saying the central bank could decide to increase its purchases at a later date.
Japan’s 10-year yield on Tuesday rose to zero percent for the first time since September, following a surge in U.S. Treasury yields after Donald Trump’s victory in the U.S. presidential election last week.
Momma said it is still hard to predict how Trump’s policies might affect the U.S. and Japanese economies. Just because it won’t be easing monetary policy for the foreseeable future doesn’t mean the BOJ can sit back and relax, Momma said.
“It will be very challenging” for the BOJ to decide the most appropriate level for the yield curve as economic conditions change, he said. “The BOJ just has to concentrate on maintaining the current framework and considering how to make the most of it.”
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