BOJ’s Iwata: Policy review to focus on mechanism, obstacles to quantitative easing

04 Aug, 2016 8:51 am

YOKOHAMA – Bank of Japan Deputy Governor Kikuo Iwata said on Thursday that a comprehensive review of the central bank’s policies due next month would focus on the monetary transmission mechanism and obstacles to its stimulus plan succeeding.

The review is not meant to transmit a specific direction for future monetary policy, Iwata said in the text of a speech.

Iwata reiterated the BOJ’s readiness to ease policy again if needed, but the worst sell-off in government bonds in more than three years on Tuesday shows investors are worried the BOJ may scale back the pace of its quantitative and qualitative easing (QQE) via buying government bonds and riskier assets.

“There’s no room for doubt that our policy has contributed to pulling Japan out of deflation, but we have not met our 2 percent price target,” Iwata said in the text of a speech to members of the finance and business communities. “In light of this, I want to review the transmission mechanism and various obstacles to our policy.”

The BOJ disappointed market hopes that it might increase government debt purchases or lower already negative interest rates at a policy meeting last week, cementing the view that it is running out of options to defeat around two decades of deflationary trends.The central bank said it would publish a comprehensive review of its monetary policy at its next meeting in September, deepening policy uncertainty and pushing investors to sell bonds.

The government finalised a fiscal spending package worth more than 28 trillion yen this week in a bid to kickstart growth, which some economists say keeps pressure on the BOJ to run monetary policy to support government spending.

Iwata said the combination of fiscal spending with the BOJ’s QQE easing was not equivalent to so-called “helicopter money” or the monetisation of government debt. -Reuters

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