On Wednesday, Bank of Japan (BoJ) policymaker Takako Masai advocated sticking to the ultra-easy monetary policy but warned that the central bank should remain on guard over any side-effects of the policy. Speaking to business leaders in Kobe, Masai said that the central bank needs to show its determination to hit the inflation target of 2 percent. Warning of the ill effects of the monetary stimulus, Masai said that the narrowing margins, due in part to the BOJ’s stimulus program, continued to weigh on banks’ profits though this has yet to discourage banks from lending.
Her dovish remarks counter that of Governor Kuroda, who a few weeks ago warned that the central bank’s policy might be having unintended consequences, and of board member Suzuki. While Governor Kuroda highlighted that risk associated with keeping 10-year yields close to zero percent, BoJ board member Hitoshi Suzuki gave out a much clearer signal that the central bank is preparing to reduce the monetary policy expansion. Suzuki in an interview with Jiji news said that the BOJ could slow its purchases of exchange-traded funds (ETF) or change the way it buys them in the future. In a separate interview with the Mainichi daily newspaper, he said, “It’s inappropriate for interest rates to show no changes until the 2 percent inflation target is hit, and then jump abruptly once the target is achieved….There is room to debate a fine-tuning of YCC once inflation heads near 2 percent so that markets can gradually accept the changes”. He also pointed out that the expansionary monetary policy with YCC and negative interest rates might be hurting Japanese financial institutions and if that is the case then monetary policy can’t function effectively, “If the health of financial institutions is in trouble, it’s possible monetary policy won’t function well….I‘m carefully watching how our policy of controlling the yield curve affects the economy, and whether or not it is creating any distortions”.
She became the second BoJ policymaker to voice support for a continued easing. Board member Kataoka suggested that the central bank must expand stimulus further to achieve its price target easily so that the prolonged monetary easing doesn’t hurt the country’s banking system.
The yen is currently trading at 112.1 per dollar.