BOJ's Nakamura stresses the need to maintain an ultra-loose policy

• Leika Kihara
• 25 Aug, 2022

One of its board members said that the Bank of Japan must maintain massive stimulus to support an economy facing a resurgence in COVID-19 infections and slowing global demand,

reinforcing the BOJ's outlier status in a worldwide wave of monetary tightening. BOJ board member Toyoaki Nakamura said on Thursday the outlook for Japan's economy was clouded by a renewed spike in pandemic cases,

lingering supply constraints and persistent rises in global commodity prices. Nakamura added that market jitters over aggressive interest rate hikes by major central banks to rein in rampant inflation could also trigger an outflow of capital from emerging economies and hurt global growth.

He said that such risks, and the fact that Japan's output gap remains negative, justify keeping monetary policy ultra-loose. "Japan's economy is still recovering from the pandemic-induced slump," Nakamura gave a speech.
 

"Shifting to a monetary tightening stance, when demand remains short of supply, would hurt the economy and act as a big restraint to household and business activity," he said.

The BOJ has refrained from joining a flurry of interest rate hikes by central banks battling record surges in prices. It focuses on supporting Japan's delayed recovery from the pandemic's hit.

Nakamura said that Japan's consumer inflation, at 2.4%, is much lower than the rate of over 8% seen in the United States and Europe due mainly to sluggish wage growth.

He added that with recent price gains driven chiefly by rising raw material costs, Japan must deal with the impact through targeted fiscal measures rather than monetary tightening.
 

"While core consumer inflation may accelerate toward year-end due to rising prices of energy, food and durable goods, such a boost will likely dissipate," Nakamura said.

"Japan is not yet in a situation where it can achieve our price target in a sustained, stable fashion," he said, stressing the need to maintain ultra-low interest rates.

The BOJ has deployed a massive amount of stimulus for nearly a decade to fire up inflation to its 2% target. It continues to cap long-term interest rates around zero to support the economy.  - investing