BOJ’s Nakamura says it is premature to tweak ultra-easy policy

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A man walks past Bank of Japan's headquarters in Tokyo

By Leika Kihara

TOKYO (Reuters) -It is premature for the Bank of Japan to tweak its ultra-loose monetary policy, board member Toyoaki Nakamura said on Wednesday, stressing the need to maintain its massive stimulus to underpin a fragile economy.

While prolonged ultra-low interest rates were weighing on profits for financial institutions, the benefits of the stimulus still exceeded its costs, Nakamura said.

His comments echoed those of Haruhiko Kuroda, the governor of the central bank, who has repeatedly brushed aside the need to raise interest rates any time soon.

“It’s premature to change monetary policy now,” as recent rises in inflation were driven mostly by raw material costs rather than higher services prices, Nakamura told a news conference.

“The key point is whether inflation can continue to rise sustainably,” he said, adding that he was not yet convinced that inflation would exceed the bank’s target of 2% in the next fiscal year.

When the outlook for the economy and prices brightens further, the BOJ can start debating how to normalise monetary policy, he added.

The remarks came after another member of the bank’s board, Naoki Tamura, said in a newspaper interview last week the central bank should conduct a review of its monetary framework that could possibly lead to a tweak to ultra-loose policy.

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In a speech earlier in the day, Nakamura said wage and economic growth must rise for inflation to sustainably attain the BOJ’s target of 2%.

“Recent price rises aren’t accompanied by wage increases yet,” he said, adding that this meant the central bank ought to keep monetary policy ultra-easy for the time being.

The former executive of an electronics firm also said there was “no magic wand” in boosting Japan’s potential growth, stressing the need to heighten low labour productivity.

Markets have been rife with speculation the BOJ may phase out its massive stimulus programme when dovish Governor Kuroda’s second, five-year term ends in April next year.

In quarterly forecasts made in October, the BOJ projected core consumer inflation to hit 2.9% in the current fiscal year ending in March 2023 before slowing to 1.6% the following year.

(Reporting by Leika Kihara; Editing by Himani Sarkar, Shri Navaratnam and Raju Gopalakrishnan)

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