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BOJ to keep interest rates low even if inflation expected to hit 3 percent – former central bank policymaker

Leika Kihara and Takahiko Wada

TOKYO (Reuters) – The Bank of Japan (BOJ) is likely to maintain its massive stimulus even as inflation is expected to hit 3 in the coming months %, to ensure domestic demand strengthens enough to offset slowing global growth, Takeshi Kataoka, a former BOJ board member, told Reuters. There is little resistance, said Kataoka, who has advocated aggressive easing during the central bank’s term that ended in July.

“I don’t think there will be a lot of discussion on the idea of ​​further easing unless economic conditions deteriorate sharply,” he said in an interview on Tuesday, adding that fiscal policy will be “in the face of the next recession”. Play an important role.

Rising global commodity prices are intensifying Cost-push pressures in Japan have reached unprecedented levels, he said. This is forcing companies to raise prices and increasing inflation that is likely to remain for some time Likely above BOJ’s 2% target.

But Governor Haruhiko Kuroda is likely to maintain ultra-easy monetary policy for the remainder of his term, which ends in April, he said 2023, adding that such a policy would be appropriate given weak consumption in Japan and the looming risk of a global slowdown.

“Headline inflation could hit 3 %, but the rise will be driven mainly by rising raw material prices, “with little sign that inflation expectations are approaching the BOJ’s 2% target.

“For the BOJ, simply because inflation briefly hit 3% rate hike is a bad idea,” said Kataoka, now chief economist at consultancy PricewaterhouseCoopers in Tokyo.

Asset purchases failed to push inflation to 2% Target, the Bank of Japan is 2016 shifting to yield curve control (YCC). Under this policy, the Bank of Japan guides short-term interest rates at -0.1%, 10 Annual bond yields are around 0%.

The Bank of Japan has delayed further easing since 2016 undertook a review of its framework to make its policies more sustainable. Critics argue that aggressive stimulus cannot go on forever because it comes with increasing costs, such as at ultra-low Interest rates hurt bank profits. Global inflation now gives the BOJ the perfect reason to maintain YCC, the five-year board said.

Japan keeps interest rates low while other central banks raise rates, which will weaken the yen, By raising the cost of imports, it boosts exporters’ profits and drives up inflation.

“Real interest rates are falling, driving capital spending. If the yen continues to fall over the next year and beyond, this could also change corporate behavior, including attracting investment back to Japan,” Kataoka said. “All of this is exactly what YCC is aiming for. “

Japan’s economy has only recently begun to recover from the scars of the pandemic, with restrictions on activities lifted.

Kataoka said as corporate financing pressures are easing , the Bank of Japan may end a pandemic relief funding program as scheduled in September, but the government should provide the necessary support to prevent a rise in bankruptcy cases.

“Considering the situation related to the pandemic, The effect of the program is over,” he said.

Japan’s headline consumer price indicator rose 2.6 percent in July from a year ago. Excluding volatility The core consumer price index (CPI), which is larger for fresh food but includes fuel, rose 2.4%, mainly driven by rising raw material costs.

Kuroda has repeatedly said the BOJ has no intention of unless inflation rises to accompany it higher wage growth and stronger domestic demand, or withdraw stimulus.



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