BOJ’s Kiuchi calls for review of negative rates, inflation goal timing

23 Jun, 2016 8:50 am

KANAZAWA – Dissenting Bank of Japan board member Takahide Kiuchi said the central bank should review its negative interest rate policy, give itself more time to hit its 2 percent inflation target, and warned that the demerits of its massive monetary stimulus were outweighing the benefits.

A prolonged period of ultra-low interest rates, brought about by the BOJ’s huge asset purchases, and the adoption of negative rates had destabilised the bond market and damaged the central bank’s credibility, Kiuchi said on Thursday.

“The additional (positive) effects of quantitative and qualitative easing (QQE) have been diminishing,” Kiuchi told business leaders in the western coastal city of Kanazawa. “On the other hand, numerous side effects of QQE seem to be increasing steadily,” he said.

Kiuchi’s views are not shared by the majority on the BOJ’s nine-member board, but his doubts over Governor Haruhiko Kuroda’s radical stimulus policies are gradually gaining support among lawmakers and policymakers, including some at the bank.

The BOJ’s policies are aimed at ending two decades of deflation and stagnant growth, but nearly three years of aggressive money printing has failed to accelerate inflation, which fell for the second straight month in April as external headwinds discouraged firms from raising wages and keep households from spending.

The BOJ surprised markets in January by adding negative rates to its asset-buying programme in a fresh bid to accelerate inflation, but Kiuchi, who voted against the decision, said it had impaired the credibility of the bank’s monetary policy by reducing the predictability of its actions.

The move has also failed to address an unwelcome rise in the yen, while Japanese shares have weakened, drawing criticism that the BOJ had succeeded only in confusing rather than calming markets.

By persisting with its pledge of achieving 2 percent inflation at the earliest possible date, Kiuchi said the BOJ was creating “overly heightened market expectations” of additional easing.

“The BOJ shouldn’t aim at achieving its 2 percent inflation target with monetary policy alone in the short term,” he said.

“Rather, it should reset the timeframe for achieving the target to a medium- and long-term one, and conduct monetary policy in a flexible manner.”

A former market economist, Kiuchi has been the sole opponent of the BOJ’s massive asset-buying programme and has called for it to be tapered. He also voted against the BOJ’s decision in January to adopt negative interest rates. -Reuters

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