TOKYO (Reuters) - The Bank of Japan will probably expand its stimulus at one of its next two policy meetings, with first quarter data expected to give policymakers compelling reasons to ease, an academic with close ties to the central bank governor said on Thursday.
The BOJ will also be watching for the outcome of the Group of Seven summit this month, which could show major economies’ willingness to spur global growth and help determine Japan’s own fiscal stimulus agenda.
Takatoshi Ito, currently a professor at Columbia University, told Reuters that Japan should proceed with a scheduled sales tax hike next year and, given its huge public debt, rely on monetary policy to spur growth.
He noted the central bank still has policy options, such as boosting asset purchases or pushing interest rates deeper into negative territory.
“Various inflation indicators are mixed. If all of them weaken and stock prices fall, the BOJ won’t hesitate to ease,” Ito said.
However, Japan will need to convince its G7 peers, particularly the United States, that yen rises are excessively volatile if it wants to conduct yen-selling intervention.
“Japan would at least need informal consent by G7 nations if it were to intervene. It won’t be able to intervene when there is strong resistance by the United States,” he said.
Data due on Wednesday is likely to show Japan’s economy barely grew in the first quarter on weak consumption. Analysts expect only feeble growth in coming quarters as policymakers struggle to arrest unwelcome yen gains that hurt exports. [nL3N1831TK]
Ito, who worked under Haruhiko Kuroda when the two were senior officials at Japan’s Ministry of Finance, retains regular contact with the BOJ governor.
Ito, whom Kuroda describes as a friend he “greatly respects”, said it was inappropriate for the BOJ to resort to “helicopter money”, or direct financing of public spending by the government.
Such a step would make an exit from ultra-loose policy extremely difficult and require using taxpayers’ money to fix the BOJ’s balance sheet, making the central bank vulnerable to government interference, Ito said.
“It’s unthinkable,” he said. “I think the governor understands this.”
Premier Shinzo Abe traveled to Europe earlier this month to convince G7 leaders of the need for coordinated fiscal action, which was met with a lukewarm response.
Ito, who sat on various government economic panels, said Abe likely won’t gain consent for coordinated fiscal action at the G7 summit, which Japan hosts this month.
“The health of the global economy isn’t that bad,” Ito said. “There’s really no need to deploy huge-scale fiscal stimulus.”
Editing by Chris Gallagher and Sam Holmes