Fri, Jun 24, 2016 page15

• BOJ’s Kiuchi urges negative rates review

  DWINDLING TOOLKIT: The BOJ board member said the bank had little left in its toolkit to boost growth if market mayhem threatened Japan’s economic recovery

  • Reuters, KANAZAWA, Japan
  • • 
    • 
    • 

  Dissenting Bank of Japan (BOJ) board member Takahide Kiuchi yesterday said that the central bank should review its negative interest-rate policy and inflation target time frame, while warning there was not much it could do to help the economy in the event of a severe market shock.

  With markets nervous as polls opened in Britain’s referendum on EU membership, Kiuchi said the BOJ was ready to offer emergency liquidity via market operations if turmoil follows a vote to leave.

  However, he said the central bank, which is already nearly three years into a huge asset-buying stimulus program and in January adopted negative interest rates, had little left in its toolkit to boost growth if market mayhem threatened Japan’s fragile economic recovery.

  “I don’t think the BOJ has technically reached the limits [of monetary easing], but it is hard to come up with steps with positive effects that outweigh the long-term demerits,” he told reporters after meeting with business leaders in the western coastal city of Kanazawa yesterday.

  He said the prolonged period of ultra-low interest rates brought about by the BOJ’s asset purchases and the negative rates decision had destabilized the bond market and damaged the central bank’s credibility.

  “The additional [positive] effects of quantitative and qualitative easing have been diminishing,” he told the business leaders. “On the other hand, numerous side effects of quantitative and qualitative easing seem to be increasing steadily.”

  Kiuchi’s views are not shared by the majority on the BOJ’s nine-member board, but his doubts over BOJ Governor Haruhiko Kuroda’s radical stimulus policies are gradually gaining support among lawmakers and policymakers, including some at the bank.

  The BOJ’s policies are aimed at ending two decades of deflation and stagnant growth, but nearly three years of aggressive money printing has failed to accelerate inflation, which fell for the second straight month in April as external headwinds discouraged firms from raising wages and kept households from spending.

  The shock decision on negative interest rates, which Kiuchi voted against, had impaired the credibility of the bank’s monetary policy by reducing the predictability of its actions, he said.

  The move has also failed to address an unwelcome rise in the yen, while Japanese shares have weakened, drawing criticism that the BOJ had succeeded only in confusing rather than calming markets.

  By persisting with its pledge of hitting 2 percent inflation at the earliest possible date, Kiuchi said the BOJ was creating “overly heightened market expectations” of additional easing.

  “The BOJ should not aim at achieving its 2 percent inflation target with monetary policy alone in the short term,” he said. “Rather, it should reset the time frame for achieving the target to a medium and long-term one, and conduct monetary policy in a flexible manner.”

  Over-reliance on ultra-loose monetary policy has also hampered necessary structural reforms and might be working to push down, not boost, Japan’s already low productivity and potential growth, Kiuchi said.

  “Japan’s economy is suffering from supply-side problems rather than a lack of demand. Supply-side problems cannot be solved by monetary policy,” he said.

  Kiuchi, a former market economist, has been the sole opponent of the BOJ’s massive asset-buying program and has called for it to be tapered.
• Most Popular

  • 1

    Typhoon could trigger sea warning, hit central Taiwan

  • 2

    Exports soar 49.7% to all-time high

  • 3

    China ignores new airport safety concerns, CAA says

  • 4

    Fung-wong approaches Taiwan, batters Philippines

  • 5

    Liverpool take win; Mbappe struggles