MNI INTERVIEW: Policymakers Must Be Ready To Act: Ex-BOJ Maeda

Policymakers must stand ready to deal with a worsening of Japan's economy if the Covid-19 pandemic worsens, although at present, it seems unlikely it will deteriorate and fall back into recession, a former Bank of Japan executive director told MNI.

"If the spread of infection is prolonged, it will lower medium- to long-term growth expectations and deteriorate investment and spending," Eiji Maeda, now president of Chiba-Bank Research Institute, said in his first interview with foreign media since leaving his post at the central bank.

Maeda, formerly BOJ chief economist and head of the monetary policy department, said central bank policy alone will not be sufficient to deal with a slower economy and policy mix with fiscal action is essential.

NO DECEMBER EASING

Maeda thought the only BOJ action likely at the December meeting will be an extension of the lending facilities put in place since the start of the crisis and are set to expire at the end of March.

"The government's economic stimulus measures (to be released soon) will pave the way for the BOJ to extend its facilities as it is keeping step with the government to deal with the coronavirus pandemic," Maeda said.

Outside the extended financing arrangements, Maeda doesn't see the BOJ easing policy, even if the yen appreciated – although a sharp stock market correction could trigger action.

"Even if the economy somewhat worsens, the BOJ will not conduct additional easing as stimulus effects from additional easing will not be big," Maeda said.

Maeda sees the economy marking time for now, before a modest pick-up. However, the negative output gap (-4.83 percentage points estimated by the BOJ in Q2) will not turn positive before the second half of fiscal 2022, he said.