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BOJ's Masai advocates staying with 'powerful easing', warns on side-effects

Japan's economy expanded an annualised 1.4% in the third quarter due to strong exports

Reuters  |  Kobe, Japan 

Bank of Japan's (BOJ) new board member Takako Masai attends a news conference at the BOJ headquarters in Tokyo. Photo: Reuters
Bank of Japan's (BOJ) new board member Takako Masai attends a news conference at the BOJ headquarters in Tokyo. Photo: Reuters

board member Takako Masai on Wednesday advocated sticking with ultra-easy monetary due to uncertainty over how fast will rise, while warning that the central bank should remain on guard against the possible side-effects.

Despite a strengthening economy, Masai conceded that it was taking longer than expected to eradicate Japan's sticky deflationary mindset, or public perceptions that won't rise ahead.

"Even so, there's no change to the need... to conduct powerful monetary easing," Masai said in a speech to business leaders in Kobe, western Japan, adding that it was critical for the BOJ to keep showing its determination to hit its 2 percent target.

"On the other hand, the BOJ must continue to very carefully watch the effects and side-effects" of its stimulus, she said, nodding to growing concern in markets that prolonged easing was taking a toll on Japan's banking sector by eroding margins.

Masai said the narrowing margins, due in part to the BOJ's stimulus programme, continued to weigh on banks' profits though this has yet to discourage banks from lending.

"Banks have ample capital base, so the risk of Japan's banking system destabilising isn't big," she told reporters after the speech, shrugging off the view that the costs of the BOJ's ultra-loose were outweighing the benefits.

Japan's expanded an annualised 1.4 percent in the third quarter due to strong exports, posting the longest period of uninterrupted growth in more than a decade.

Lingering Pessimism

But core consumer rose just 0.8 percent in October from a year earlier, still well below the BOJ's target, as many firms remain wary of raising and wages due to pessimism over Japan's long-term growth prospects.

Masai said that while downside risks to the were diminishing, those to the BOJ's forecasts remained high as there was uncertainty on whether more companies will begin to raise wages and

Still, she added, the BOJ should not be too pessimistic on the outlook as a tightening job market, increasing private consumption and brightening global economic prospects are seen nudging firms to boost wages and

The BOJ has been dropping subtle, yet intentional, hints that it could edge away from crisis-mode stimulus earlier than expected, sources say, though an actual exit from ultra-easy would be some time away.

Under a framework adopted last year, the BOJ guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent. The central bank next meets for a rate review on Dec. 20-21.

Masai, formerly a currency market strategist, has voted with the majority of the board including on last year's revamp.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Wed, December 06 2017. 13:54 IST