The Bank of Japan must be vigilant to the risk its massive stimulus programme could overheat the economy and create financial imbalances, board member Koji Ishida said on Thursday.
The former banking executive said he saw no immediate signs the central bank’s aggressive money printing was sowing the seeds of an asset bubble, and that such risks were something to worry about in the long-term.
But his warning about the rising costs of the BOJ’s aggressive money printing contrasts with the views of Governor Haruhiko Kuroda, who has mostly dismissed such risks and talked up the near-term benefits of the stimulus programme.
“It’s necessary to look carefully, from a long-term perspective, whether there is no build-up in risks to Japan’s financial system,” Ishida told business leaders in Kyoto, western Japan.
Ishida was among four of the five board members who voted against the BOJ’s decision to expand stimulus last October to prevent slumping oil prices, and a subsequent slowdown in inflation, from delaying a sustained exit from deflation.
DEEP BOARD RIFT
His comments underscore a deep rift within the BOJ board between members who are confident of the success of the bank’s stimulus programme, and those becoming increasingly worried about its demerits – such as distorting market functions.
The BOJ is already gobbling up roughly the same amount of government bonds issued in markets each month, raising questions about how long it could sustain its huge asset purchases.
Many BOJ officials feel there is no need to expand stimulus again in the near future. Their view is that inflation, which has ground to a halt due to last year’s oil-price rout, will accelerate toward the BOJ’s 2 percent target by September next year as the economy improves steadily.
Ishida is among those reluctant to top up asset purchases, though on Thursday he offered a more cautious view on the economic outlook than optimists such as Kuroda hold.
China’s economic slowdown and lingering weakness in Asian emerging markets may weigh on Japanese exports, while it is uncertain whether factory output will pick up as recent declines in commodity prices hit raw material firms, he said.
“There’s a risk the recent softness in exports and output may hurt corporate sentiment just when companies were beginning to turn more aggressive on investment,” Ishida said.