EXCLUSIVE BOJ politician sees prospects for more in-depth debate on price target this year

TOKYO, July 30 (Reuters) – The Bank of Japan could see the conditions set to start discussing a new strategy to meet its price target later this year, as the economy shakes the blues COVID-19 pandemic, board member Asahi Noguchi told Reuters.

Even so, the central bank may delay the expansion of the stimulus unless a shock event derails Japan’s economic recovery, Noguchi, known as a strong advocate of aggressive monetary easing, said in his debut. interview since joining the board in April.

“Once the vaccinations start and the economy normalizes, we will see pent-up demand emerge a bit as households tap into the savings accumulated during the lockdown measures,” Noguchi said.

“There is a lot of uncertainty due to the new COVID-19 variant. But if all goes well, we may be able to start the debate (on rising inflation) at the end of this year until the end of this year. ‘see you next year.”

The remarks are the first from a policymaker specifying when the BoJ might shift its focus away from tackling the immediate hit of the pandemic, and return to the longer-term question of how to tackle low inflation.

By keeping interest rates low and flooding markets with liquidity through asset purchases, the BOJ hopes to encourage businesses and households to spend more. A recovery in consumption would allow companies to raise prices and wages, thus helping to support inflation.

Years of ultra-accommodative politics, however, have failed to drive up inflation as weak consumption prevents companies from charging more for goods and services.

Noguchi said cutting interest rates and increasing asset purchases would be part of the options if the BOJ were to ease further.

Under a policy known as yield curve control (YCC), the BOJ guides short-term interest rates to -0.1% and 10-year bond yields around 0%. He is also buying government bonds and risky assets to meet his elusive 2% inflation target.

The central bank could also target longer-term yields than the current 10 years to further reduce borrowing costs, Noguchi added.

When asked if the BOJ could target 15 to 20-year bond yields as part of its easing policy, he replied, “I guess so.”

Noguchi is the first BOJ board member to launch the idea of ​​targeting longer-term bond yields. The idea would run counter to the BOJ’s current view that excessive drops in super-long yields are not desirable because they hurt pension fund margins.

“There could be various side effects and costs that arise from these steps,” he said. “It would be a call that we need to make to find out whether conditions warrant any easing, despite the side effects.”

BASIC TREND KEY

Noguchi joined a board split between members wary of the growing cost of extended easing and fans of massive stimulus.

Some investors felt his appointment tipped the board in favor of bolder measures to boost inflation.

Noguchi said the BOJ should ease “without hesitation” if a shock event plunges the economy into a severe downturn. But he added that low inflation alone shouldn’t be the trigger.

“What is important is to look at the basic trend of the economy” through the evolution of wages, jobs and the output gap, he said. “Unless this trend is broken, it is important to patiently maintain the current very strong monetary easing.”

Noguchi also challenged dominant market views that he belonged to a camp of academics who believe that with a wall of money central banks can change the public’s perception that deflation will persist.

In addition to capping borrowing costs, the BOJ pledges to increase money printing until inflation “stably exceeds” 2%, in the hope that the commitment will help increase money printing costs. inflation expectations.

“Personally, I don’t think this engagement has a big effect on changing inflation expectations,” given Japan’s entrenched deflationary mentality, Noguchi said.

On the contrary, the engagement was more effective in reducing market uncertainty about the future direction of monetary policy, he said.

“It may take a while, but a more realistic policy would be to maintain the current strong monetary easing to steadily improve the output gap, so that demand increases enough to support wages and inflation.”

Reporting by Leika Kihara and Takahiko Wada; Editing by Raju Gopalakrishnan

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