MNI POLICY: BOJ Suzuki Warns on Side-Effects, Stability Vital

Bank of Japan board member Hitoshi Suzuki warned Thursday that the side-effects of a prolonged easy policy are accumulating and the BOJ must pay attention to the risk that the side-effects would affect the financial system.

"The momentum toward the price target is temporarily lost due to the coronavirus," Suzuki told business leaders in Asahikawa City, Hokkaido, via an online conference, noting easing policies will likely be in place for some time.

Suzuki also said, "The financial intermediation is working smoothly but the problem is from now on. It will take time for economic activities return to normal, even if the infectious disease comes to an end."

"If the impact of the infectious disease is bigger-than-expected, a worsening of the economy will affect the financial system, which in turn will increase downward pressure on the real economy," Suzuki said.

The BOJ's next policy-setting meeting is scheduled for September 16-17.

SIDE EFFECTS

Suzuki also noted that the BOJ mut pay more attention to favorable effects and side-effects than before. The bank must achieve both price stability and the stability of financial system.

Once the financial system destabilizes, ensuring the price stability will be very difficult and it will be too late, he said.

In other points, he noted the drop of profits at financial institutions is caused by the declines in loan margin and of fund investment, and the rise in credit costs and that Japan's economy, with economic activity resuming, is likely to improve gradually from the second half of this year but the pace of improvement is expected to be only moderate while the impact of Covid-19 remains global.

Suzuki expects Japan's prices to remain weak, saying that energy item and traveling will be adversely affected by the infectious disease and downward pressure on durable goods, clothes and eating out will likely increase.