The Bank of Japan will refrain from accelerating money printing or deepening negative rates this month as improvements in the economy make it hard to justify again deploying “bazooka”-like big stimulus, a former central bank executive said.
The BOJ may consider making some “adjustments” to its asset purchases at the Sept. 20-21 rate review if it needs to appease investors betting on action, said Kazuo Momma, who oversaw the bank’s monetary policy drafting and global affairs until May.
“Even so, it won’t be a ‘bazooka 3’ that greatly pushes forward the timing for achieving 2 percent inflation,” he told Reuters on Tuesday.
When the BOJ deployed massive quantitative and qualitative easing (QQE) in 2013, the market dubbed that “bazooka 1”, and expansion of the asset-buying 18 months later became “bazooka 2”.
Momma said “there’s no magic bullet left for the BOJ to achieve 2 percent inflation quickly,” stressing that structural reforms to boost Japan’s growth potential are needed.
The BOJ eased policy in July by increasing purchases of exchange-traded funds (ETF) to prevent external risks from hurting business confidence, a move that disappointed investors betting on a big increase in bond buying or a further rate cut.
A majority of analysts expect the bank to expand stimulus again this month, when its board conducts a comprehensive assessment of its stimulus programme.
Momma, who retains close contact with incumbent policymakers, said the fact the BOJ didn’t expand government bond purchases or deepen negative rates in July shows there is now some reservation within the bank about using these tools aggressively.
NO LOGICAL REASON
Japan’s economy hasn’t deteriorated much since the July easing and the government’s fiscal spending package will start to boost growth, offering few reasons to expand monetary stimulus now, he said.
“Logically, there’s no reason for the BOJ to ease this month,” especially through an increase in its base money target or rate cuts, said Momma, now executive economist at Mizuho Research Institute.
In a speech on Monday, BOJ Governor Haruhiko Kuroda signalled readiness to ease further using existing and new tools. But he acknowledged for the first time that his easing tools are not without costs.
“This is a significant departure from the BOJ’s past communication,” which just emphasised the merits, Momma said. “It shows that the balance between the cost and benefits of each step would be crucial to any future policy action.”
With three years of money printing having failed to lift inflation, the BOJ may modify its policy target to one better suited for a long-term battle against deflation, he said.
One idea would be to maintain the BOJ’s base money target at 80 trillion yen ($774 billion) but add a phrase saying the size of its bond buying could fluctuate depending on market conditions, he added.
Momma shrugged off the chance of the BOJ buying foreign bonds, saying it would be tantamount to currency intervention.
He also dismissed the possibility of shifting to a policy targeting long-term interest rates, asserting it would be technically difficult to control yields.