By Leika Kihara
SHIMONOSEKI, Japan (Reuters) – Bank of Japan Deputy Governor Masayoshi Amamiya said on Thursday the central bank must contain the side effects of its policy to maintain its current “powerful” monetary easing for a prolonged period.
Amamiya said it was taking longer than initially expected to achieve the BOJ’s 2 percent inflation target, as firms were keeping costs low by streamlining operations and price-sensitive households were discouraging companies from raising prices.
That means the BOJ must “patiently” continue its ultra-loose monetary policy while also staying mindful of the potential demerits, such as the impact of prolonged easing on financial institutions’ profits, he said.
“The BOJ is fully aware that prolonged downward pressure on financial institutions’ profits … could risk destabilizing the financial system,” Amamiya said in a speech to business leaders in Shimonoseki, western Japan.
Amamiya also warned that U.S.-China trade frictions, if prolonged, could hurt Japan’s economy by souring companies’ investment appetite and market sentiment.
“Japan’s economy is highly likely to continue expanding as a trend,” Amamiya said.
“But we need to be mindful that risks to our baseline scenario are heightening, mainly regarding those to overseas economic developments,” he added.
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Source: Investing.com