BOJ won't dial back stimulus, seeks more nimble policy

TOKYO: The Bank of Japan's policy review in March won't lead to a withdrawal of monetary stimulus, Deputy Governor Masazumi Wakatabe said, stressing its readiness to sustain or ramp up support if the COVID-19 pandemic hurts the economy further.

Speaking to business leaders in an online meeting, Wakatabe said the review will discuss measures to ensure the BOJ can deal with any future shocks to the economy "effectively" and in a timely fashion.

The key would be to strike the right balance between the costs and benefits of the BOJ's massive stimulus, so it becomes more sustainable and "nimble" in responding to changes in economic developments, Wakatabe said on Wednesday.

"What I'd like to emphasise is that the policy examination won't be about dialling back monetary stimulus," he said. "It isn't aimed solely at containing the cost of our policy measures."

As the coronavirus pandemic forces it to maintain a massive stimulus programme for a prolonged period, the BOJ plans to announce next month ways to make its tools more sustainable.

Sources have told Reuters the BOJ could allow long-term interest rates to move more widely around its 0% target and tweak its asset-buying programme so it can purchase risky assets more flexibly.

Wakatabe said the review will not lead to an overhaul of the BOJ's yield curve control (YCC) policy or its 2% inflation target. Rather, it will scrutinise the tools, such as its asset purchases, to make them more sustainable, he added.

"Since our price target and policy framework have been working well to date, there's no need to change them," he said.

Wakatabe said it was crucial to keep real interest rates, which are calculated by subtracting inflation expectations from nominal rates, at low levels.

"Inflation expectations have weakened somewhat and the output gap has deteriorated significantly" due to the hit from the pandemic, Wakatabe said.

"Since downward pressure on economic activity and prices is likely to continue for a prolonged period, it will take considerable time to achieve 2% inflation," he added.

Under YCC, the BOJ guides short-term interest rates at -0.1% and 10-year bond yields around 0% via huge bond purchases. It also buys risky assets, such as exchange-traded funds (ETF), as part of efforts to achieve its elusive 2% inflation target.