A Japanese finance official said the Bank of Japan’s policy tools are sufficient for now as a central bank board member said a new level of action is needed to counter deflation.
“The BOJ, for the time being, should stick to policy measures it has taken so far,” Vice Finance Minister Shunichi Yamaguchi said in an interview yesterday in Tokyo. Board member Takehiro Sato said in a speech today that reaching a 2 percent inflation goal will be difficult without new initiatives.
Prime Minister Shinzo Abe may seek to sweep away policy divisions as the early exit of Governor Masaaki Shirakawa accelerates the reshaping of the central bank’s leadership. Shirakawa’s announcement yesterday that he’ll step down next month heightened investors’ expectations for aggressive steps to tackle entrenched deflation. The Nikkei 225 Stock Average surged by the most since March 2011 today as the yen slid.
“Abe will only gain momentum and public support as the yen weakens and stocks rise,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “The next big focal point is the BOJ’s April meeting, when it will be important for the bank’s new leadership to show they are able to live up to Abe’s expectations.”
The yen fell to its weakest level in almost three years against the dollar and euro today, while the Nikkei closed at the highest since September 2008. At 5:53 p.m. in Tokyo the yen was at 93.74 per dollar, after earlier touching 94.06, and the Nikkei closed up 3.8 percent.
Yamaguchi, 62, who was interviewed before Shirakawa made his announcement, declined to comment on an appropriate level for the yen, repeating government statements that the currency is correcting after excessive gains. In a Jan. 24 interview, Deputy Economy Minister Yasutoshi Nishimura said that a level of 100 per dollar would be no problem.
Yamaguchi’s comments on monetary policy suggest no quick push for the foreign bond purchases previously suggested by the ruling party. Abe’s Liberal Democratic Party proposed a fund run by the BOJ, the Ministry of Finance, and private investors to buy foreign bonds, a move that could further weigh on the currency.
“If it became necessary to do more, then that is something to be considered at that time,” Yamaguchi said.
The BOJ’s Sato, who was speaking to business leaders in Gunma, north of Tokyo, said that achieving the 2 percent price target will be difficult “merely by enhancing ongoing policy initiatives.”
“Both the government and the central bank must tackle this issue with much greater vigor,” Sato said.
As one of two deputy finance ministers, Yamaguchi has represented the ministry at the central bank’s policy board meetings. The BOJ last month adopted a 2 percent inflation target without a deadline and said it would wait until 2014 to start open-ended asset purchases. Consumer prices excluding fresh food, the key inflation measure, fell for the seventh time in eight months in December.
Yamaguchi highlighted the likely importance of April-to- June economic data in shaping any debate over plans to raise the sales tax from 2014 as part of efforts to rein in swelling government debt.
“As Prime Minister Abe said, it would become difficult to raise the sales tax should the economy slip into a bad shape,” Yamaguchi said. At the same time, he said, “if we forgo a sales-tax hike, that would run the risk of losing the financial market’s trust.”
He said that he expected “discussions to develop in the direction of enacting a tax increase.”
On the issue of central bank independence, Yamaguchi said that he sees no need for now to change the law governing the Bank of Japan. He said that while some lawmakers within his party take the opposite view, he believes that the majority share his opinion.
Shirakawa told reporters yesterday that he will step down on March 19, almost three weeks before his term was due.
To contact the reporters on this story: Mayumi Otsuma in Tokyo at firstname.lastname@example.org; Kyoko Shimodoi in Tokyo at email@example.com
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