MNI POLICY: BOJ Amamiya's Calls for Firm but Easy Policy

Bank of Japan Deputy Governor Masayoshi Amamiya has said that the BOJ must be firm in conducting the current easy policy through its three key measures and the bank will extend them beyond the due expiry of March 31, 2021, if necessary.

"If financial markets become unstable due to uncertainties over future economic developments, the real economy could be negatively affected through deterioration in firms' and households' sentiment," Amamiya told business leaders in Akita City via an online conference on Wednesday.

"Such adverse effects may lead to a vicious cycle between turmoil in financial markets and deterioration in the real economy. To avoid this cycle, it is important to maintain stability in financial markets at the time of a crisis," he said.

The three measures are the special lending facilities to support corporate financing, JGB buying, and ETF and J-REIT buying to minimize risk premiums.

MONETARY POLICY

"With the economy improving at only a moderate pace, corporate financing is likely to remain under stress for the time being. Various uncertainties, including the course of Covid-19, could lead to instability in financial markets at home and abroad. Thus, the BOJ considers it important to continue firmly conducting current monetary easing through the three measures," Amamiya said.

"Since there are high uncertainties over the impact of Covid-19 on economic and financial activities, the Bank will, for the time being, closely monitor its impact and not hesitate to take additional monetary easing measures if necessary."

RISK OF PRICE FALL NOT BIG

"The risk of an overall and sustained decline in prices is judged as not significant at present," Amamiya said.

"However, the employment and income situation is likely to remain weak for a while and a decline in actual prices could affect people's perception of prices under the adaptive formation mechanism of inflation expectations, which is persistent in Japan. Taking these factors into account, price developments continue to warrant attention."

FINANCIAL SYSTEM

"The financial system could be affected when the challenge for economic entities shifts from a liquidity problem to a solvency one. Thus, future developments warrant close attention," Amamiya said.

"What is important is that regional financial institutions firmly support economic activity in their respective regions into the future while steadily pursuing strengthening of their business foundations, even with the business environment becoming increasingly severe due, for example, to the impact of Covid-19.

"Based on this recognition, the BOJ decided on a plan to introduce this facility. The BOJ expects that this facility will be used by many regional financial institutions and will encourage their initiatives to support regional economies."