BOJ March review to seek effective ways to deal with shocks, says Vice Governor Wakatabe

TOKYO (Reuters) – The Bank of Japan’s policy review in March will discuss measures to ensure it can cope with any future shock to the economy “efficiently” and in a timely manner, said Wednesday Vice Governor Masazumi Wakatabe.

The key would be to strike the right balance between the costs and benefits of the massive BOJ relaunch, so that it becomes more sustainable and “agile” to respond to changes in economic developments, Wakatabe said.

“What I would like to stress is that the policy review will not be about reducing the monetary stimulus,” he said in a speech during an online meeting with business leaders. “It is not just aimed at containing the cost of our political measures.”

As the coronavirus pandemic forces it to maintain a massive stimulus program for an extended period, the BOJ plans to announce in March ways to make its tools more sustainable.

Wakatabe said the March review would not lead to an overhaul of the BOJ’s yield curve control (YCC) policy or its 2% inflation target. Rather, it will look at tools, such as its asset purchases, to make them more sustainable, he added.

“Since our price target and policy framework have been working well so far, there is no need to change them,” he said.

Wakatabe said it was essential to keep real interest rates, which are calculated by subtracting inflation expectations from nominal rates, at low levels.

“Inflation expectations have weakened somewhat and the output gap has deteriorated significantly” due to the pandemic blow, Wakatabe said.

“Since the downward pressure on economic activity and prices is likely to continue for an extended period, it will take a considerable time to achieve inflation of 2%,” he added.

Under YCC, the BOJ steers short-term interest rates at -0.1% and 10-year bond yields around 0% via huge bond purchases. It is also buying risky assets, such as exchange-traded funds (ETFs), as part of efforts to meet its elusive 2% inflation target.