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Repeats Story Initially Transmitted at 04:20 GMT Nov 15/23:20 EST Nov 14
--Ex-BOJ Momma: Low Lending Rates Vs. Risks Crucial Situation
--Ex-BOJ Momma: Raising Rates Will Not Mitigate Side-Effects
--Ex-BOJ Offl: BOJ More Focused On Near-Term View Than Future Risks
By Hiroshi Inoue
TOKYO (MNI) - The Bank of Japan must rethink how to achieve its 2% price
stability target, as they cannot address the accumulated side-effects of easy
policy under the current policy framework, a former BOJ chief economist told MNI
in an interview this week.
"It is very vital for the BOJ to change its knowledge of the 2% price
target as the BOJ cannot weaken the degree of the easy policy as long as the BOJ
is aimed at achieving the 2% price target," Kazuo Momma, now executive economist
at Mizuho Research Institute, told MNI Tuesday.
Momma said that the BOJ needs to compare the merits of achieving the 2%
price target at the possible earliest time alongside the costs of the
He noted that the BOJ board is concerned over the side-effects of easy
policy but it will not make any policy adjustments as it judges there is no sign
so far of excessively bullish expectations in asset markets or in the activities
of financial institutions.
"The board judges the near-term situation is more important than future
risks," Momma said, adding that the BOJ should seriously consider which is more
important -- satisfaction with the near-term situation or the preemptively
minimizing medium- to long-term risks and costs of a prolonged easy policy.
"There was no board discussion that the BOJ should preemptively adjust the
easy policy in case of future risks. Looking ahead, the important issue is
whether the board discusses the necessity to cope with growing future risks,"
Momma also addressed policy transmission issues and the impact on the
health of banks, warning over the findings of BOJ surveys that show around half
of regional financial institutions responded that loan interest rates for
middle-risk firms do not adequately match credit costs.
"The survey results, not a BOJ analysis, have very grave consequences.
Regional financial institutions themselves recognize the grave conditions. The
survey results are very crucial and Japan's authorities should swiftly prompt
those banks to increase capital bases," he said.
Momma said that raising interest rates alone will not ease the side-effects
of easy policy and problems facing financial institutions.
--2% TARGET PRIORITY
He noted that the BOJ board members recognize the issues coming from
accumulated side-effects, but the BOJ board will not weaken their easy policy as
achieving the 2% price target remains top priority for the board.
"If the risks materialized or unless the BOJ faces impending situation, the
board will not take the risks seriously," Momma said.
As for wider economic issues, Momma said that Japan's economy is expected
to grow in the fourth quarter after a temporary contraction in the third.
Japan's economy posted a first contraction in two quarters in the
July-September period, down 0.3% on quarter, or an annualized -1.2%, weighed by
private consumption, capital investment and exports following recent natural
disasters, preliminary gross domestic product data released Wednesday by the
Cabinet Office showed.
"The economy will not fall into recession as it will continue to be
supported by domestic demand. Private consumption remains firm, although it
fluctuates. Corporate' appetite for capital investment is strong," Momma said.
Momma, however, said that the BOJ sees the economy's fall in the third
quarter as "temporary", but added that the growth momentum is weakening as
economies in China and other Asian countries slow.
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