KOFU, YAMANASHI PREF. - A Bank of Japan policymaker expressed concern Thursday that the central bank’s current policy, aimed at keeping the country’s long-term interest rates low to spur domestic demand, may eventually hurt the economy.
“Controlling long-term interest rates at a certain level could undermine the automatic stabilizer function of the economy,” Takahide Kiuchi, who has called for normalization of the bank’s aggressive monetary easing, said in a speech.
Kiuchi is known as one of the nine Policy Board members keeping their distance from BOJ Gov. Haruhiko Kuroda, who has promoted drastic monetary easing since he took office in 2013.
With an eye on achieving its 2 percent inflation goal, the BOJ has since September adopted a new “yield curve control” policy, designed to keep the targeted 10-year Japanese government debt yield at around zero percent by adjusting the amount of its bond purchases. Yields move inversely to debt prices.
Kiuchi’s remarks came as Japan’s long-term interest rates are on an upward trend in tandem with increases in U.S. Treasury yields, triggered mainly by speculation that President Donald Trump’s administration may boost government spending and issue more bonds, causing higher inflation in the United States.
The upward pressure, caused by the rise in U.S. long-term rates since Trump’s election in November, is posing “the first challenge” for the BOJ since the introduction of the policy of controlling long-term interest rates, Kiuchi said.