The Bank of Japan (BOJ) can double its annual pace of bond accumulation to ￥100 trillion (US$985 billion) to give fresh impetus to the economy after next month’s sales-tax increase, an aide to Japanese Prime Minister Shinzo Abe said.
“It’s not taboo for the BOJ to double the goal of bond holdings,” Koichi Hamada, 78, a retired Yale University professor who advises Abe on monetary policy, said in an interview on Friday in Tokyo. “The BOJ will be concerned about the real risk of being seen as financing debt, but drastic action is justified to pull Japan’s economy out of 15 years of stagnation.”
Hamada said the central bank should add stimulus as soon as May should indicators show the 3 percentage-point tax rise is seriously damaging the economy. He said annualized growth of 0.7 percent in the final quarter of last year showed that “Abenomics isn’t strong enough.”
“It would be too late if the BOJ waits for April-June GDP data” due in August, Hamada said. “I don’t doubt the BOJ’s projection that Japan’s economy will continue a moderate recovery even after the sales-tax increase because [Bank of Japan governor Haruhiko] Kuroda’s stance shows he can quickly and flexibly add powerful stimulus.”
Economists at BNP Paribas SA and HSBC Holdings PLC were among 10 of 34 analysts in a Bloomberg News survey who said the bank would need to accumulate at least ￥90 trillion of Japanese government bonds a year — equal to all new issuance and up from about ￥50 trillion now — to have the same impact as the April easing.
Kuroda said there is “no limit” to what the bank could do if it needed to adjust its policy, Jiji news agency reported, citing comments he made on Thursday in an interview. The central bank does not have to “outwit” the market, he said, according to Jiji.
The yen weakened 18 percent against the US dollar last year, and the benchmark TOPIX stocks index rose 51 percent after the central bank began unprecedented stimulus on April 4 last year. The yen has strengthened about 4 percent this year, trading at ￥101.71 to the dollar at 5:41pm in Tokyo, and the TOPIX has fallen more than 10 percent.
SMBC Nikko Securities Inc chief rates strategist Chotaro Morita agrees with Hamada that the central bank would have to double its pace of boosting holdings to get the same punch, a move Morita said could help push the yen down to ￥120 per US dollar.
“That simple message would help make overseas investors understand the BOJ’s resolve to achieve its price goal,” Morita said. “Weakening the yen is basically the only way that the BOJ can maintain a chance to achieve its 2 percent inflation target.”