KOBE: Bank of Japan board member Takahide Kiuchi said on Thursday the central bank should consider shifting the focus of monetary policy to zero interest rates from asset purchases when moving to end its ultra-loose stance.
Kiuchi said while the BoJ's quantitative and qualitative easing (QQE) programme had been effective in boosting the economy, keeping it in place for too long entailed big potential risks, such as creating financial imbalances and making an exit from the stimulus scheme difficult.
Some BoJ executives, including Deputy Governor Hiroshi Nakaso, have vaguely talked about possible options for when the central bank ends its stimulus programme, but Kiuchi is the first among the nine board members to directly discuss the best possible way to end QQE.
"Under QQE, the BOJ purchases assets on an unprecedented scale.
Therefore, it is necessary to be particularly vigilant against various potential risks," he said in a speech to business leaders in Kobe, western Japan.
Kiuchi repeated his view, which is not shared by others on the board, that the BOJ should consider its 2 percent inflation target as a long-term goal without a deadline, instead of setting a two-year timeframe for achieving it.
Under the QQE programme put in place last April, the BoJ has pledged to double base money through aggressive asset purchases to achieve its 2 percent price growth target in two years.
While the BoJ now targets base money, not interest rates, its asset purchases have pushed down bond yields across the curve with 10-year borrowing costs now around 0.5 percent.
Kiuchi said that unconventional monetary policy, such as the asset purchases under QQE, is effective as a temporary measure to boost the economy but should not be used for too long because its drawbacks are still unknown.
A conventional interest rate policy, on the other hand, is useful as a fine-tuning tool to guide the economy and prices to desirable levels after massive asset purchases lift sentiment, he said.
"If developments in economic activity and prices continue to steadily improve, I think it will be necessary in the future to examine the option of gradually starting to shift the focus of monetary policy conduct from asset purchases to zero interest rates," he said.
Kiuchi's view of QQE and his focus on the drawbacks of ultra-loose stimulus is a minority opinion within the nine-member board.
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