MNI POLICY: BOJ Sakurai: Prepare For Contingency; Act Swiftly

The Bank of Japan should conduct additional easing policy swiftly and in an appropriate manner if needed, while maintaining cooperation with the government and major central banks, BOJ board member Makoto Sakurai said on Wednesday.

Speaking to business leaders in Fukui City via an online conference, Sakurai said, "If the economic recovery is delayed longer than expected, it would have adverse effects on the economy and financial system" and the BOJ needs to swiftly act if required.

However, he didn't elaborate on what kinds of policy measures the BOJ would take and did not see an imminent need for more easing.

Sakurai emphasized that the BOJ should maintain current accommodative policy to keep the expected inflation rate in positive territory.

Other key points from Sakurai's speech:

--Monetary policy had not directly changed economic structures but BOJ policy had indirectly supported structural reform. This hinted at how the BOJ would manage monetary policy in the post-coronavirus economy.

--As for future monetary policy, it was vital for the BOJ to think about how long the economic recovery will take, and about the risks in a long recovery.

--Sakurai warned that if the economic impact of the pandemic continues for a long period, it would increase the seriousness of corporate financing, increase the number of bankruptcies, and worsen the labor market condition. This, in turn, would lower Japan's potential growth rate.

--He also warned that if non-performing loans increased, it would undermine banks' financial conditions and negatively impact the functioning of the financial system and increase downward pressure on the real economy.

--The BOJ should prepare tools which enabled the bank to swiftly enact necessary policy measures, while carefully monitoring the real economy and financial system conditions.

--For the time being, the BOJ must maintain the stability of financial system to avoid a negative feedback loop.