The Bank of Japan has the option to adjust its already large monetary policy further, a high ranking official from the Bank of Japan said last week. The BoJ’s deputy governor, Amamiya told a local newspaper that the central bank could adjust its monetary policy which has already expanded strongly with little to show for.
His comments came as part of his interview with the newspaper. Amamiya said that the there was no chance of the central bank opting for a near term exit from its massive quantitative easing policy as he played down speculation that the BoJ could be the next central bank to tighten monetary policy. He said that cutting back on the stimulus program prematurely could potentially risk Japan’s economy to fall back into deflation.
According to the deputy governor, the central bank is expected to closely monitor the rising costs of prolonged easing such as the effects of keeping interest rates near zero that could erode on profits in the banking industry. He said that the demerits could start to accumulate over time.
When questioned by the newspaper about the BoJ’s ability to fine tune its monetary policy stimulus program in order to address the risks, the deputy governor said that adjustments could happen if officials see it as a necessary option in order to achieve the price target. “We should not rule this out,” Amamiya told the newspaper.
The deputy governor’s comments come as the Bank of Japan continues to pursue its aggressive monetary policy program which started five years ago in a bid to revive Japan out of deflation. Consumer prices have however remained weak with the central bank seen failing to achieve its 2% inflation target. This comes as firms stay cautious on raising wages and price of their goods.
The Bank of Japan had recently removed the time frame for achieving the 2% inflation target leaving the markets guessing on the next monetary policy action.
Japan’s central bank lags behind the U.S. and the European central banks when it comes to dialing down its crisis-era policy tools. Many policy makers at the BoJ have been vocal about the risks of prolonged easing.
According to central bank watchers, some analysts note that the central bank has the option to raise its long term rates in order to achieve the target inflation rate slightly while keeping its stimulus program still alive.
The deputy governor said that Japan’s economy was making steady progress towards achieving the central bank’s price stability target. He however said that it was becoming more evident that achieving the 2% inflation target was not easy and could take more time than initially anticipated.
He also said that it was important to change the public perception on inflation. “Instead of trying to change public perceptions with a shock blow, we should guide inflation toward our target through steady improvements in the output gap and inflation expectations,” the deputy governor told the newspaper.
According to Amamiya, the Bank of Japan is also expected to look closer as to why consumer prices have remained stubbornly low. At the latest measure, consumer prices in Japan were seen rising just 0.7% in the month of May. This is also a weaker than expected reading compared to the central bank’s own forecasts.
The deputy governor said that the central bank will look at various factors that are preventing inflation from rising.
The deputy governor’s comments come ahead of the Bank of Japan’s quarterly review of its projections in the July BoJ monetary policy meeting. Amamiya said that the review would also account for the structural factors that are weighing in on consumer prices.