BOJ policymaker pledges to keep ultra-easy policy for time being

By Leika Kihara

KOCHI, Japan (Reuters) – Japan’s central bank will not dial back its ultra-loose policy in the near-term, a bank board member said, as global risks cloud prospects for hitting its elusive inflation target and despite the impact of prolonged easing on the financial sector.

Bank of Japan board member Yukitoshi Funo, a former executive of Toyota Motor (T:), said the central bank must be mindful of the risks that prolonged monetary easing could hurt financial institutions’ profits and destabilize the country’s banking system.

But he said the central bank’s priority was to keep stimulating the economy, to give the government and companies time to boost Japan’s growth potential through structural reforms and increased capital expenditure.

“The BOJ will continue its monetary easing to support measures by various entities” to heighten Japan’s growth potential, Funo said in a speech to business leaders in Kochi, western Japan, on Wednesday.

Years of heavy money printing have failed to fire up inflation to the BOJ’s 2 percent target, forcing the central bank to maintain its massive stimulus despite the rising cost such as the hit to bank profits from near-zero rates.

The BOJ took steps in July to make its policy framework more sustainable, such as allowing bond yields to move more flexibly around its zero percent target.

The central bank also adopted a pledge – dubbed “forward guidance ” – to keep interest rates very low for an extended period, partly to dispel market speculation that it may hike rates to give financial institutions some breathing space.

“What we’re saying is that, given recent price developments, we will not whittle down our powerful monetary easing for the time being,” Funo said.

Japan’s core consumer prices rose 0.7 percent in September from a year earlier, remaining distant from the BOJ’s target, despite a steady economic expansion and a tightening job market.

Data released on Wednesday showed inflation-adjusted real wages fell in September for a second straight month, as higher gasoline costs sap consumers’ purchasing power.

Heightening external headwinds also mar the outlook for Japan’s economy with analysts now projecting a contraction in the third quarter.

Funo said that while Japan’s economy is likely to continue expanding moderately, there were various uncertainties for the overseas economic outlook.

“Particularly uncertain is the outlook of each country’s trade policy, which warrants attention,” said Funo.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.