BOJ policymaker says ready to take bold action as needed
KAGOSHIMA, Japan, June 21 — The Bank of Japan is prepared to take bold action to support the economy when necessary, one of its policymakers said today, signalling the possibility of further monetary policy easing next month if risks to the country's recovery heighten.
Board member Koji Ishida said that while Japan's economy now appears on track to achieve the BOJ's forecast of a moderate recovery by around autumn, that does not guarantee the central bank will stand pat on policy next month.
“Central banks around the world have taken bold monetary policy action when necessary after scrutinising economic and financial developments in their countries. The same goes for the BOJ,” the former banking sector executive told a news conference after meeting business leaders in Kagoshima, southern Japan.
“I would like to scrutinise information until the last minute in deciding on policy, but we are ready to act if that is necessary. It's not true that the BOJ doesn't want to act or is hoping to avoid acting if possible,” he said.
Japan's economy is expected to outperform most of its G7 peers this year with growth of around 2 per cent, as solid private consumption and spending for rebuilding from last year's earthquake offset some of the pain from a strong yen.
The BOJ kept monetary policy unchanged and revised up its economic assessment last week, convinced that growth is picking up moderately mainly on firm domestic demand.
But it warned that global uncertainty runs high as Chinese growth slows and Europe's debt crisis keeps markets on edge, suggesting that it will offer further stimulus if Japan's recovery prospects come under threat.
Some market players expect the central bank to ease policy again via an increase in its asset-buying programme next month, when it issues revised quarterly forecasts that may show a sustained end to deflation is still far.
Ishida said that even if the BOJ cuts its consumer inflation forecasts in July, such action alone would not immediately trigger easing because what is most important is to look at the longer-term trend of prices. But he also did not rule out action depending on how the economy would be performing at the time.
“I don't have any preconception about (our policy decision in July). We will scrutinise various data available by that time in debating monetary policy,” he said.
The combination of slowing global growth, faltering expansion in China and the worsening euro zone crisis have fanned expectations of more easing by policymakers worldwide.
The US Federal Reserve yesterday delivered another round of stimulus by extending its “Operation Twist “bond buying programme, while the Bank of England signalled it was close to releasing a wave of new money into the shrinking British economy.
Warns of overseas slowdown
Ishida, a former banking sector executive, said the central bank's ultra-loose policy has kept borrowing costs in Japan very low despite market worries over the euro-zone crisis, and that the country's economy is on course for a moderate recovery.
But he warned that Europe's sovereign debt woes and a bigger-than-expected slowdown in overseas growth could challenge the BOJ's recovery forecast, which was made in its twice-yearly outlook report issued in April and serves as a basis for its policy decisions.
“As a trend, (Japan's economy) is highly likely to move in line with the BOJ's mainline scenario,” Ishida said, adding that its recovery projection rests on the assumption that exports will pick up before the boost from reconstruction spending begins to fade.
“But the damage to Japan's economy would be huge if European and US economies destabilise and weigh heavily on growth in emerging nations,” he said in a speech to business leaders in Kagoshima.
In a sign any recovery will be fragile, a Reuters poll showed that the corporate mood turned pessimistic in June for the first time in four months as Europe's debt crisis, a strong yen and worries about a slowdown in emerging markets took their toll on manufacturers' sentiment.
The BOJ eased policy in February and set a 1 per cent inflation target to underline its resolve to reinflate an economy beset by deflation for much of the past two decades. It relaxed policy again in April but has paused since then.
Ishida, who has voted with the majority since joining the board in June 2011, will soon see his board at full strength for the first time since early April.
Japan's parliament today approved the nominations of two prominent economists, both known as in favour of aggressive monetary easing steps, for the BOJ's nine-member board.
While the exact date of when they will join has not been finalised, they are likely to make it on board in time for the next policy meeting on July 11-12. — Reuters