NARA – Bank of Japan board member Takako Masai has said the global economy is on track for a rebound around mid-year as manufacturing activity picks up, signaling that risks such as the coronavirus outbreak do not warrant an immediate expansion of stimulus.
Masai, who has consistently voted with the majority of the board, acknowledged that the coronavirus epidemic is among risks to the global economy and may hurt Japanese business sentiment.
The sales tax hike that rolled out last October could also weigh on consumption over time by reducing households’ real income, she said Thursday.
But there was no change to the view that Japan’s economy will expand moderately thanks to robust capital expenditure and signs of a pickup in global manufacturing activity, Masai said.
“There seem to be signs of recovery in the manufacturing sector” as IT firms see demand perk up, Masai said.
“My assessment is that if these developments continue, overseas economies will pick up through the first half of 2020,” she said in a speech to business leaders in Nara.
The remarks suggest that while the BOJ stands ready to ease policy further if risks derail Japan’s fragile economic recovery, it sees no imminent need to act.
Masai, a former commercial banker, said she was mindful of growing concerns that prolonged, global ultralow interest rates could encourage investors to take on excessive risk.
There are also worries that years of near-zero interest rates could hurt economic activity by reducing the returns of pension products, she added.
“Nonetheless, in my view, it is still essential for Japan to persistently continue with the current (monetary) policy to overcome deflation completely,” Masai said.
“The BOJ will persistently devise measures considered necessary at the time,” while paying careful attention to the benefits and costs of its policy, she said.
Under a policy dubbed “yield curve control,” the BOJ guides short-term rates at minus 0.1 percent and the 10-year government bond yield around 0 percent as part of efforts to hit its elusive 2 percent price goal.
Japan’s economy likely suffered a contraction in the final quarter of last year, as October’s sales tax hike and slowing global demand hurt consumption and exports.
The BOJ expects the economy to recover this year and help fire up inflation toward its target, clinging to hopes that global growth will rebound around mid-year and underpin exports.
But the widening fallout from the coronavirus has cast doubt on the central bank’s rosy projection, putting it under pressure to maintain or even expand its massive stimulus.
The BOJ’s nine-member board is split between those who see room to expand stimulus, and others who are reluctant to do so on worries over the rising cost of prolonged low rates, such as the hit to financial institutions’ profits.