© Reuters. FILE PHOTO: A man in front of the Bank of Japan headquarters in Tokyo, Japan, on May 22, 2020. REUTERS / Kim Kyung-Hoon / File Photo
By Tetsushi Kajimoto and Leika Kihara
TOKYO (Reuters) – The Bank of Japan should maintain its massive stimulus even as the economy recovers from the hit of the pandemic, board member Asahi Noguchi said, reinforcing expectations that the country will lag behind in the pullout. of political measures in crisis mode.
In a speech, Noguchi was cautiously optimistic about Japan’s economic outlook, saying that its recovery will be clearer from the end of the year as vaccine launches help ease the effects of the COVID-19 pandemic.
But Japan’s low-trending inflation means that a reopening of the economy likely won’t trigger a rise in wages and inflation seen in other advanced nations, he said.
“As a result, the withdrawal of the monetary easing about to be undertaken by other central banks will not be an option for the BOJ,” Noguchi, considered among the proponents of aggressive monetary easing on the nine-member board, said Thursday.
Noguchi also said the BOJ should be cautious in ending a pandemic relief loan program that expires in March given the need to support the fragile economy, indicating that it is ready to argue for another term extension.
The downside risks deserved great attention due to the spread of variants, as well as their impacts on auto industry supply chains, as uncertainty remains high, Noguchi added.
“Most notable in today’s speech is the fact that Noguchi suggested that Japan is different from other countries facing rising inflation,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.
“It is true that global inflation was on the G20 agenda, while Japan remains mired in disinflation. As such, Noguchi pointed out that there is no immediate need to change monetary policy.”
Under a policy called yield curve control (YCC), the BOJ guides short-term interest rates at -0.1% and 10-year bond yields around 0%. It also buys government bonds and risk assets to meet its elusive 2% inflation target.
However, years of ultra-lax policy have failed to boost inflation, as weak consumption prevents companies from charging more for their goods and services, keeping inflation well below its 2% target.
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