by Leika Kihara
TOKYO (Reuters) – The Bank of Japan must maintain massive stimulus to support an economy facing COVID-19 infections and a slowdown Global demand has reinforced the Bank of Japan’s unusual position amid a global wave of monetary tightening, a board member said.
Toyoaki Nakamura, a member of the Bank of Japan’s board of directors, said on Thursday that Japan’s economic outlook was clouded by a new round of monetary tightening. A surge in pandemic cases, lingering supply constraints and continued gains in global commodity prices.
Fears of sharp interest rate hikes by major central banks to rein in rampant inflation could also trigger capital outflows from emerging markets, Nakamura added. ) “The Japanese economy is still in the process of recovering from the recession caused by the pandemic,” Nakamura said in a speech.
“Shifti’s monetary tightening stance if demand remains in short supply will damage the economy and impose significant constraints on household and business activity,” he said.
with a wave of interest rate hikes by the central bank in response to a record price surge, as it focuses on supporting Japan’s delayed recovery from the blow of the pandemic.
Consumer inflation in Japan is much lower at 2.4%, with growth of more than 8% in the U.S. and Europe due to sluggish wage growth, Nakamura said. He added that the impact will be through targeted fiscal measures rather than monetary tightening.
“While core consumer inflation is likely to accelerate towards the end of the year due to higher energy, food and durable goods prices, that boost is likely to dissipate,” Nakamura said.
“Japan has not reached our level to achieve the rice target in a sustained, stable manner,” he said, stressing the need to maintain ultra-low interest rates.
The Bank of Japan has deployed a slew of stimulus over nearly a decade to push inflation up to its 2 percent target and continue to cap long-term interest rates near zero to support the economy.