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BOJ's Shirai says stimulus support will continue well into 2016

Published 29/05/2014, 09:11

By Leika Kihara

NAHA Japan (Reuters) - Bank of Japan board member Sayuri Shirai said that aggressive monetary stimulus should remain in place well into 2016 as it would take longer than the central bank's two-year timeframe to achieve its price target.

The former International Monetary Fund economist said the BOJ should not be adamant about meeting the two-year timeframe, set last April when its massive stimulus was put in place, at the risk of creating excessive distortions in the economy.

Her views contrast with Governor Haruhiko Kuroda's repeated assurances that Japan is on track to meet the bank's 2 percent inflation goal sometime next year, and expose differences within the board on how long it may take to hit the target.

"We shouldn't think that we must achieve 2 percent inflation strictly in two years at whatever cost," she told a news conference on Thursday after meeting with business leaders in Naha, capital of the southernmost Japanese prefecture of Okinawa.

"What's most important is to ensure that 2 percent inflation is maintained in a stable manner," said Shirai, among the most dovish policymakers in the nine-member board.

QQE HERE TO STAY

Under the stimulus launched in April last year, the BOJ pledged to double base money via aggressive asset purchases to accelerate inflation to 2 percent in roughly two years.

Kuroda has repeatedly stressed his conviction that Japan can achieve the price target within two years, although some on the board agree with private-sector analysts that the timeframe is too ambitious for a country only just emerging from deflation.

In its half-year projections issued last month, the BOJ said it now expects to achieve the price target during fiscal 2015, which ends in March 2016.

But Shirai said it will take until fiscal 2016 for consumer inflation to reach 2 percent, because households and companies will need time to adjust to price rises after 15 years of deflation.

She was also more pessistic about the economic outlook than other board members, saying there were risks to the outlook.

There was also a risk household spending may lose momentum if wages don't increase enough to make up for the rising cost of living from inflation, and a two-stage increase in the sales tax hike, Shirai said.

The first tax hike -- from 5 percent to 8 percent -- was put in place in April with the second one due in October 2015, provided the government feels the economic situation would be stable enough to proceed. Shirai said the BOJ must scrutinise how the second sales tax hike will affect the economy in judging whether the BOJ's price target is achieved, suggesting that QQE should be maintained at least until fiscal 2016.

Kuroda has stressed that QQE is an "open-ended" programme that will be maintained until the inflation goal is achieved in a stable manner, but has declined to say specifically how long the stimulus will remain in place.

Some in the board feel the extraordinary stimulus programme shouldn't be maintained for too long because doing so will make exiting the policy more difficult.

(Editing by Eric Meijer)

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