MNI POLICY: BOJ Amamiya: Econ To Recover, Path Not Yet Clear

The recovery path for Japan's and overseas economies is not yet clear but there has been a move towards transition into recovery, Bank of Japan deputy governor Masayoshi Amamiya said Wednesday, noting there was no apparent hit to the financial system.

"It is expected that stability of the financial system will not be hampered significantly and the economy will be supported from the financial side," Amamiya said.

"It is necessary to closely monitor future developments because, if the real economy deteriorates for a prolonged period, this could affect the financial system and the vicious cycle that I mentioned earlier could start operating," he warned.

Although seeing some positives, Amamiya said the spread of Covid-19 has "not yet subsided on a global basis and there is concern over the risk of a resurgence of Covid-19 in countries where the spread has subsided, including Japan",

Amamiya said there are unusual uncertainties over how firms will set prices during the Covid-19 pandemic and their behavior warrants attention.

"It is unlikely that the inflation rate will approach the price stability target of 2 % with momentum during the projection period since rapid recovery in demand can hardly be expected," he noted

POLICY

On current policy, he noted that the cooperation between government and the BOJ was "effective."

"The government's aggressive fiscal measures and the Bank's monetary easing measures can have synergistic effects; namely, of a so-called policy mix of monetary and fiscal policies," he said

He underlined that the BOJ's purchases of JGBs are being conducted as part of monetary policy, and thus do not represent monetary financing of government debt.

The deputy governor also pointed that the government and the Bank have "taken various measures to support financing, and the government's measures and the Bank's fund-provisioning measures have worked together effectively," Amamiya added.

"On this basis, as for measures that take into account the solvency problem, the government has established programs through which credit guaranteed loans as well as capital and quasi-capital funds can be provided."

"The BOJ will continue to make efforts to provide financing support and maintain stability in financial markets through the three measures that I mentioned earlier, he added"

In the later Q&A, Amamiya said it was "appropriate" for central banks in advanced economies to aim to achieve the 2% price target, which will contribute to stabilizing foreign exchange and financial markets.

When asked, he said the BOJ "doesn't rule out" deepening the policy interest rates further as a possible policy option, although he admitted that a prolonged low interest rates and flattening yield curve caused by the negative rate are weighing on banks' profits.