TOKUSHIMA, Japan, Nov 27: The Bank of Japan should consider expanding monetary stimulus if economic and price growth sharply deviates from its projections, a central bank policymaker said, warning that prospects for meeting the bank’s inflation target were uncertain.
Sayuri Shirai — among the growing number of pessimists in the nine-member board — said she wasn’t sure whether consumer inflation will reach 2 percent two years from now due to uncertainty over whether wages and inflation expectations will improve enough in a country long mired in deflation.
‘I won’t rule out further easing. If risks materialise, Japan’s economic and price growth may sharply deviate from our projections,’ Shirai told a news conference after meeting business leaders in Tokushima, western Japan, on Wednesday.
‘If that happens … We shouldn’t hesitate to ease,’ she said, adding that the BOJ should also consider further action if market confidence in its inflation target is sharply eroded.
Shirai declined to say what tools were available if the BOJ were to act again, but added that there were ‘various ideas,’ such as buying more government bonds and other assets.
The former IMF economist was among the three board members who surprised markets last month by dissenting to the rosy projections made in the BOJ’s semi-annual report, exposing a rift in the bank over prospects for meeting its pledge to accelerate inflation to 2 percent in roughly two years.
But even the pessimists disagree on what needs to be changed in the BOJ’s current policy framework.
Shirai dismissed attempts by the two other dissenters to water down the BOJ’s commitment, including that by one board member who said the bank’s inflation target should be considered in a range centering on 2 percent.
‘Setting a range … May be one option but only when consumer inflation stably exceeds 1 percent and long-term inflation expectations can be projected to move around 2 percent,’ she said.
‘Unless such conditions are met, adopting a range … Could give the impression the BOJ’s determination to achieve 2 percent inflation has waned.’
Shirai said she expects core consumer inflation to slightly exceed 1.5 percent in fiscal 2015 but was unsure whether it will reach 2 percent by the end of that year in March 2016.
Her projection falls around the middle of the forecasts made by the nine board members. Their median forecast for fiscal 2015 is for core consumer inflation of 1.9 percent.
GLOOM PERSISTS
The BOJ has kept monetary policy steady since delivering an intense burst of stimulus in April, under which it pledged to double base money via aggressive asset purchases to accelerate inflation to 2 percent in roughly two years.
The views expressed by pessimists like Shirai are in contrast to the optimism voiced by Governor Haruhiko Kuroda, who has repeatedly said Japan is making steady progress towards achieving the BOJ’s price target.
Many economists doubt the BOJ can reach its inflation goal so soon. Some board members share that scepticism including former private-sector economist Takahide Kiuchi, who said on Tuesday there is room to re-examine the target in the future.
Shirai stuck to the BOJ’s view the Japanese economy is recovering moderately. But she said risks to the outlook were tilted to the downside given the delay in a pickup in exports and global growth — a point she made in dissenting last month.
She was also gloomy on the outlook for domestic demand, warning that any pickup in capital expenditure may be moderate and personal consumption — so far a key driver of economic growth — may have peaked.
‘If wages don’t rise that much, the momentum for consumer activity may change even when excluding the effect of (next year’s) sales tax hike,’ she said.
For now, however, there is no imminent need to ease as risks have not heightened enough to undermine the BOJ’s baseline forecasts, she added.
(AGENCIES)
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