TOKYO (Reuters) - The Bank of Japan must ease monetary policy further at its rate review on April 30 given signs of slowdown in the economy and prices, a ruling party lawmaker and one of the architects of premier Shinzo Abe’s “Abenomics” reflationary policies said.
The central bank has various tools available if it were to act again, such as topping up asset purchases or scrapping a 0.1 percent floor it sets on money market rates, said Kozo Yamamoto, a leading expert on monetary policy in Abe’s ruling Liberal Democratic Party.
“The economy is at a standstill and prices are seen falling ahead. To do nothing isn’t an option for the BOJ,” Yamamoto, a close aide to Abe, told Reuters on Wednesday.
“Further monetary easing is absolutely essential to ensure that the Japanese don’t slip back to a deflationary mindset.”
A vocal advocate of aggressive monetary stimulus, Yamamoto told Reuters last October that the BOJ needed to deploy additional stimulus to ease the pain from a sales tax hike in April. He also said Abe should delay a second tax hike. Both proposals became true.
The BOJ has stood pat since October’s action and signaled that no further stimulus is needed for now, insisting that rising wages and improvements in the economy will accelerate inflation toward its 2 percent target around this fiscal year ending March 2016.
But with inflation having ground to a halt and seen staying around that level for much of this year due to low oil prices, many analysts expect the BOJ to ease again sometime in 2015.
Those predicting action in April, however, are in a minority.
Yamamoto said it would be wrong for the BOJ to sit idly if prices were to slide ahead. Recent signs of economic weakness were also a concern, he added, pointing to the BOJ’s “tankan” survey on Wednesday showing that a recovery in business confidence has stalled.
The BOJ should cut its bullish economic and price forecasts in new long-term estimates due on April 30, and ease further to show its determination to hit its inflation target, he said.
“There are various ways the BOJ can loosen policy,” such as topping up purchases of government bonds, corporate bonds and trust funds investing in property, as well as diversifying the type of assets it targets, Yamamoto said.
The BOJ can also scrap a 0.1 percent interest it pays to excess reserves financial institutions park with the central bank, which serves as a floor on money market rates, he added.
Any such measures are unlikely to spur an unwelcome sharp fall in the yen, because the European Central Bank is also pumping out money aggressively and the Federal Reserve will raise interest rates only gradually, Yamamoto said.
Some lawmakers and Abe’s aides have signaled the BOJ should not ease policy too soon as doing so could accelerate yen falls and boost import costs, hurting households and small firms.
“There’s no need to worry about that now,” Yamamoto said.
“I think the Abe administration’s top priority is to revive the economy,” he said.
“Further BOJ easing will also contribute to the global economy” and so won’t raise eyebrows in the global community, he added.
Editing by Kim Coghill