May 11, 2018 / 10:11 AM / in 5 months

Potential contender for next Japan PM calls for ending ultra-easy monetary policy

TOKYO, May 11 (Reuters) - The Bank of Japan should not continue its radical stimulus for too long given the strain ultra-low interest rates are inflicting on regional banks, said Seiko Noda, a cabinet minister considered one of the contenders to be the next prime minister.

The BOJ should not persist in achieving its elusive 2 percent inflation target and focus instead on boosting growth and consumption through higher wages, said Noda, who is the internal affairs and communications minister.

“Rather than focusing narrow-mindedly on achieving the price target, wouldn’t it be better to go back to the approach of prioritising economic recovery accompanied by 2 percent inflation?” Noda told Reuters.

“The key to reaching that goal is personal consumption. It takes wage hikes to generate personal consumption,” she said.

Noda is so far the only contender to say publicly she wants to run in a party leadership vote in September, in which Prime Minister Shinzo Abe aims to gain a third three-year term to become Japan’s longest-serving premier.

But Abe’s popularity ratings have skidded in recent months on suspicions of a cover-up linked to cronyism.

After nearly three years of heavy asset purchases failed to drive up inflation to its ambitious 2 percent target, the BOJ revamped its policy framework in 2016 to one better suited to a long-term battle to beat deflation.

It now guides short-term interest rates at minus 0.1 percent and long-term rates around zero percent.

Noda said it was clear the BOJ’s ultra-easy policy was hurting financial institutions’ profits, particularly those in regional areas of Japan.

“We shouldn’t continue with unprecedented monetary easing for too long,” she said.

BOJ Governor Haruhiko Kuroda insists the central bank will maintain its massive stimulus until his price goal is achieved, though critics warn of the diminishing returns and rising costs of prolonged easing such as the hit to bank profits from years of near-zero rates. (Additional reporting by Linda Sieg and Ami Miyazaki; Editing by Kim Coghill)

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