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Japan Amari: BOJ can maximize policy impact by 'surprising' markets
March 26, 2014 / 11:57 AM / 4 years ago

Japan Amari: BOJ can maximize policy impact by 'surprising' markets

TOKYO (Reuters) - Aiming for a surprise effect is one way the Bank of Japan can maximize the impact of any further monetary easing, Economics Minister Akira Amari said on Wednesday, saying that the central bank still had a role to play in ensuring a sustained end to deflation.

Japan's Economics Minister Akira Amari smiles as he attends a news conference after Prime Minister Shinzo Abe (not pictured) announced a raise in the sales tax rate in Tokyo October 1, 2013. REUTERS/Toru Hanai

But Amari added that Japan should not rely on monetary policy alone in reviving the economy and showed no appetite to pressure the central bank to expand stimulus immediately.

While there is a good chance Japan can achieve the BOJ’s ambitious goal of accelerating inflation to 2 percent early next year, all three arrows of “Abenomics” - fiscal and monetary stimulus as well as an aggressive growth strategy - must all be deployed to ensure success, he said.

“The BOJ still has a role to play and it remains primarily responsible (for achieving its price target). But the government can’t sit idly by,” he told Reuters in an interview.

The BOJ has stood pat on policy since deploying an intense burst of stimulus last April, when it pledged to accelerate inflation to 2 percent in roughly two years via aggressive asset purchases in a country mired in deflation for 15 years.

Markets are rife with speculation that the BOJ will expand monetary stimulus again in coming months to cushion the pain from a sales tax hike from 5 to 8 percent in April, which is set to hit private consumption even before exports pick up.

Amari said it was up to the BOJ to decide if and when to ease policy further and sidestepped questions on whether it should expand stimulus if the impact of the sales tax hike next month proves bigger than expected, or if its price target appears difficult to achieve.

But he said that surprising markets with the timing and scale of its action was one way the BOJ could maximize the effect of any further policy steps it takes in the future.

“It’s among the skills of a BOJ governor to surprise markets in a good way,” he said, suggesting the central bank does not necessarily have to give advance signals to markets if it were to act again.

Amari said he saw no need for the BOJ to worry about the drawbacks of ultra-loose monetary policy, such as excessive risk taking by companies, in considering whether to ease further.

He also dismissed views that further policy easing might draw criticism from the global community that Japan is intentionally weakening the yen to give its exports an unfair trade advantage.

“The yen has only fallen back to levels seen before the collapse of Lehman Brothers,” he said. “It’s therefore misguided to call this yen manipulation.”


Japan’s annual consumer inflation hit a five-year peak of 1.3 percent for two straight months in January, although it remains well below the central bank’s 2 percent target.

Many analysts doubt consumer inflation will accelerate from here unless wages rise significantly, as the boost to prices from the weak yen -- which inflates import costs -- fades.

Such uncertainty over the price outlook and the impact of the sales tax hike is among key reasons analysts polled by Reuters expect the BOJ to act again by July, despite reassurances by the central bank that it has done enough for now to meet the price target.

Some analysts also expect political pressure for more BOJ stimulus to heighten toward year-end, when Prime Minister Shinzo Abe must decide whether to proceed with another increase in the sales tax rate to 10 percent from 8 percent in October 2015.

“The government needs to ensure the economy recovers solidly from the impact (of the April tax hike),” Amari said. “I believe the BOJ, too, will be watching the economy in earnest.”

Abe has said he will decide on whether to go ahead with the second tax increase by the end of this year, looking at various data, including the July-September GDP due out in early November.

The government will also collect as much data as possible to gauge how the economy is performing in October and November in reaching a final decision, Amari said.

Japan’s economy posted the strongest growth among industrial powers in the first half of 2013, spurred by Abe’s reflationary policies. But growth has slowed to around 1 percent in recent quarters as capital spending and consumption weakened, casting a shadow over the outlook for the world’s third-largest economy.

Editing by Edmund Klamann and Ron Popeski

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