• Reuters

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New board member Toyoaki Nakamura at the Bank of Japan said Wednesday the bank must “respond early” to downside risks that could emerge from the novel coronavirus pandemic.

In his inaugural news conference, Nakamura also said the nation would not see inflation pick up sustainably unless economic conditions allowed for the central bank to abandon negative interest rates.

“Looking at Japan’s current economy, we can say it’s in a pretty severe situation,” Nakamura said. “It’s important to respond early to economic developments, with an eye on conditions regarding the coronavirus pandemic,” he said.

A former executive at electronics giant Hitachi, Nakamura joined the BOJ’s nine-member board on Wednesday, succeeding former auto executive Yukitoshi Funo.

The nation is mired in recession as the pandemic hit exports and consumption, forcing the BOJ to ditch efforts to achieve its elusive 2 percent inflation target for now and focus on supporting the economy.

Nakamura said with demand “evaporating,” it was not the right time to consider abandoning negative interest rates.

But he said the nation was forced to adopt negative rates because aggressive money printing by the BOJ had failed to boost demand.

“Unless Japan returns to a situation where we can abandon negative rates, it won’t see (sustained) inflation,” he said, signaling that the BOJ should eventually seek to pull rates out of negative territory.

The central bank loosened monetary policy in March and April, focusing on steps to ease funding strains for companies hit by slumping sales from the pandemic.

It has held off from deepening negative rates below the current -0.1 percent, or cutting its zero percent long-term rate target, partly on concerns over eroding the margins of financial institutions.

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