MNI POLICY: BOJ Suzuki:  Policy Sustainability; Warns Of Risks

Bank of Japan board member Hitoshi Suzuki has said the BOJ should look for additional ways to better execute ETF and J-REIT purchases at a time when an appropriate lowering of the risk premia for asset prices become absolutely necessary.

"It is expected to take more time to achieve the price stability target, due in part to the impact of Covid-19, I think it will become even more important for monetary easing measures to be sustainable and flexible," Suzuki told business leaders in Fukushima City via an online conference on Thursday.

SUPPORTS STRUCTURAL REFORMS

"The BOJ needs to do its utmost to conduct monetary policy with a view to supporting financing, mainly of firms, and maintaining stability in financial markets," Suzuki said.

"However, from a medium-to long-term perspective, it is also important for the BOJ to support from the financial side the efforts by society and firms to push forward with structural reforms and growth strategies.

"In doing so, it is of course essential that the BOJ maintain accommodative financial conditions, thereby continuing to provide a solid foundation on which firms can take on risks and pursue change.

"At the same time, I think it is also important to encourage firms' investment in growth areas, mainly through financial institutions' expertise in examining the creditworthiness of firms and through the market mechanism, so that the potential growth rate will rise accordingly."

CREDIT COSTS, RISKS

"If institutions' financial soundness deteriorates further due to a fall in lending rates and an increase in credit costs, the smooth functioning of financial intermediation could be impaired, posing a risk that downward pressure will be exerted on the real economy," Suzuki said.

"Attention should be paid to the point that the program of interest-free and unsecured loans currently implemented to support corporate financing might exert downward pressure on spreads on regular loans that are made without the support of the program, even after the impact of Covid-19 subsides.

"Even since before the outbreak of Covid-19, financial institutions have been actively extending loans to firms with relatively high credit risk and investing in high-risk overseas assets, with the narrowing of lending margins and declines in JGB yields under prolonged monetary easing. This may be another risk factor to the outlook."

JGBs

On the subject of JGB's, Suzuki said: "It is desirable for the yield curve for super-long-term JGBs to become steeper at a moderate pace with the BOJ keeping 10-year JGB yields at around zero percent, in that financial institutions can improve profits on their investment and the BOJ can achieve financial system stability while monetary easing is prolonged."