BOJ should continue powerful easing, guard against side effects
Bank of Japan policymakers said the central bank should “patiently continue” its powerful monetary easing but attention must be paid to the potential side effects of prolonged easy policy, a summary of opinions at the June review showed.
With inflation well below the BOJ’s 2 percent target despite five years of stimulus, one member said the central bank must make efforts to improve communication with the public on its commitment to meet the price stability goal, the summary showed.
“It is appropriate, if necessary, to make efforts to improve communication and enhance the commitment in a broad sense towards achieving the 2 percent inflation target,” the member said.
The BOJ left monetary policy steady at the June 14-15 rate review but cut its inflation view in a sign it would lag far behind other major central banks in unwinding crisis-mode monetary stimulus.
Subdued inflation forces the central bank to maintain its massive stimulus despite its rising costs, such as the hit to bank profits from rock-bottom interest rates.
One member said the BOJ should consider responses to side effects before they materialize, as banks face an increase in unrealized losses on securities and risks of impairment losses at branches with low profitability, the summary showed.
Another board member called for an additional commitment that fuels inflation expectations.
“While the BOJ board’s mainstream view is to continue powerful easing to keep the momentum towards the price target, opinions appear to have become clearly divided,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.
“Still, opinions that rule out additional easing seem to be gaining ground at the moment. As such, we do not expect tweaks to monetary policy at the July policy review.”
The BOJ buys government bonds and riskier assets including exchange-traded fund (ETF) as part of its massive stimulus, but one member called for examining the possible side effects from such asset purchases from every angle, it showed.
Another member warned against adopting a policy aimed at forcibly pushing up demand quickly, as sluggish prices are unlikely to be caused by simple factors like lack of demand.
The summary showed some members called for deepening of analysis and debate on why it is taking time to hit 2 percent inflation, at its July policy review when the nine-member board conducts a quarterly review of its growth and price projections.
The BOJ releases a bullet-point summary of the opinions voiced by the board members at its policy meetings roughly a week after they are held. The views do not identify whose opinions they are. A more thorough minutes of the debate will be issued several weeks later.
