OTSU, SHIGA PREF. – The Bank of Japan should review its policy framework for boosting inflation, a member of its Policy Board said Thursday, calling for stronger action by the central bank as the widening fallout from the coronavirus outbreak risks tipping the economy into yet another recession.
The epidemic has added to uncertainty about the global economic outlook and, if prolonged, may hurt consumption by souring household sentiment, said Goushi Kataoka, one of the most dovish members of the nine-member board.
“We need to be mindful that consumption may weaken further as a trend,” Kataoka said in a speech to business leaders in Otsu, Shiga Prefecture. “Worsening sentiment among automakers and retailers could also affect the outlook for capital expenditure,” he said, adding that exports may not pick up any time soon due to uncertainty on when global demand will rebound.
Kataoka repeated his view the BOJ should deepen negative rates, arguing that the economy has already lost momentum to hit the bank’s elusive 2 percent target.
Many of the nation’s lenders are reportedly pushing back against the BOJ’s negative rates because it is eroding their profits. And many on the BOJ’s board are wary of topping up an already radical stimulus, given the rising cost of prolonged easing and a lack of tools to reflate growth.
The rapid spread of the coronavirus across the globe has stoked fears of a global economic downturn, leaving policymakers in Tokyo fretting over the risk of Japan slipping into its latest recession.
Kataoka, who has consistently voted against keeping policy steady, said it was “very important” for the government and central bank to coordinate their policies to pull Japan out of its chronic low-growth, low-inflation environment.
“I believe there’s room for the BOJ to review its policy framework and re-examine its effect including how it interacts with fiscal and pro-growth policies,” he said.
After years of heavy money printing having failed to fire up inflation, the BOJ conducted a comprehensive review of its policy framework in 2016 that led to the introduction of “yield curve control” — under which it guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield at around 0 percent.
With inflation remaining short of the BOJ’s target, a staff report by the International Monetary Fund earlier this month urged the bank to conduct a review of its policy objectives and redefine its price goal as one with an allowance.
BOJ Gov. Haruhiko Kuroda has shunned the idea and has said he does not see the need to follow in the footsteps of its U.S. and European peers that are conducting policy reviews.
Kataoka said the BOJ should strengthen its commitment to its ultraloose monetary policy by promising to act if inflation deviates from a certain range around its 2 percent goal.
At present, the BOJ pledges to continue expanding the pace of money printing until inflation overshoots 2 percent in a sustained manner. But it does not commit to taking any specific action even if inflation falls short of its target.
Kuroda has repeatedly said the BOJ won’t hesitate easing further if risks threaten the economy’s momentum toward the far-off 2 percent target.
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