BOJ Should Keep Stimulus After December Tweaks, LDP Member Says
(Bloomberg) — The Bank of Japan should keep up its aggressive monetary easing program after making adjustments in December, a senior ruling party lawmaker said ahead of the central bank’s upcoming policy meeting.
The BOJ’s surprise doubling of the bond yield band last month doesn’t mean a strategic shift from its ultra-easing program, said Hiroshige Seko, the Liberal Democratic Party’s upper house secretary general.
It would also be premature to start exiting stimulus when demand continues to lag behind supply in Japan’s economy, the former economy minister said.
“The BOJ should keep going in the current direction,” Seko, a senior member of the political faction of former premier Shinzo Abe, said in an interview on Friday. “Now is not the time for making a major policy change.”
Seko’s support for ongoing monetary stimulus comes as speculation intensifies over the possibility of the BOJ making further policy adjustments at the end of its meeting on Wednesday.
The government is also in the final stretch of selecting the new BOJ governor and two deputies. Haruhiko Kuroda is due to step down from the helm of the central bank in April after spearheading its stimulus program over the past decade.
BOJ watchers are well aware that political pressure has played a major role in influencing monetary policy in the past. It is unclear how much sway Abenomics’ supporters will have on the decision over Kuroda’s replacement.
Seko declined to comment on the nomination process and emphasized that his remarks on BOJ policy are not linked to his view on how the next leadership should be shaped.
Still, Seko appeared to support Kuroda’s efforts to cool market speculation that the widening of the 10-year-yield band was a de facto step toward policy normalization.
The yield has already breached the new upper limit, with the central bank spending record amounts on fixed-rate operations to bring it back to 0.5% on Friday. Swap rates signal rising expectations for more hawkish policy.
Under Kuroda’s tenure, the BOJ has played a major role in getting Japan out of a deflationary state, according to Seko. But the economy is still in need of the BOJ’s easing with wage gains and capital investment sluggish, he added.
“That’s a major reason why the Abenomics mission hasn’t been fully achieved and why the government hasn’t been able to declare a complete end to deflation,” Seko said of Abe’s economic policy strategy. “What’s most important is getting rid of the deflationary mindset. That’s not easy, but when wages and inflation expectations rise, consumption may finally move that way.”
Inflation has hit the fastest pace in four decades with the core gauge at 3.7% in November. Economists surveyed by Bloomberg estimate that national figures out later this week will show price growth hit 4% in December. Higher commodity and energy prices have increasingly prompted companies to pass on higher costs to consumers.
Still, the BOJ expects inflation to fall back below its 2% target in the fiscal year starting in April. Kuroda has repeatedly said that the BOJ’s easing program must stay in place until 2% inflation becomes sustainable, accompanied by higher paychecks.
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