February 28, 2019 / 2:06 AM / a year ago

BOJ's Suzuki rules out need for easing, highlights board rift

MITO, Japan (Reuters) - Bank of Japan board member Hitoshi Suzuki said on Thursday he saw “absolutely no need” to ramp up stimulus now despite rising pressure on the country’s economy, highlighting a rift within the central bank over its next policy move.

FILE PHOTO: Bank of Japan (BOJ) new policy board member Hitoshi Suzuki attends a news conference at BOJ headquarters in Tokyo, Japan July 25, 2017. REUTERS/Issei Kato

Suzuki said the BOJ should consider easing only if the economy loses momentum for hitting its 2 percent inflation target, warning that the cost of additional easing could exceed the benefits.

“Many board members, including myself, believe the momentum (for achieving the price goal) is sustained. As such, there is absolutely no need to ease further,” Suzuki told reporters after meeting with business leaders in Mito, eastern Japan.

“The demerits of further easing could exceed the costs, so we need to be careful of debating such an action,” said Suzuki, a former commercial banker.

The remarks highlight a rift in the BOJ’s board between those who want to dial back stimulus to minimize the costs of prolonged easing, and those who see room to ramp up stimulus to quicken achievement of the BOJ’s elusive price target.

BOJ board member Goushi Kataoka, a vocal advocate of aggressive easing, said on Wednesday the central bank must take stronger steps to hit its price goal quickly.

The BOJ faces a dilemma. Years of heavy money printing have dried up market liquidity and hurt commercial banks’ profits, stoking concern over the rising risks of prolonged easing.

And yet, subdued inflation has left the BOJ well behind its U.S. and European counterparts in dialing back its crisis-mode policies, leaving it with little ammunition to battle an abrupt yen spike that could derail an export-driven economic recovery.

Instead of ramping up stimulus, the BOJ must focus on making its policy framework sustainable through steps to mitigate the downsides of ultra-loose policy, Suzuki said.

“There’s a risk inflation won’t accelerate much for a prolonged period, as companies remain cautious of raising wages and households are sensitive to price rises,” he said.

“It’s important that our policy framework is sustainable,” Suzuki said, echoing the view of Governor Haruhiko Kuroda.


Increasing economic risks are complicating the BOJ’s task of balancing the costs and benefits of its policy. Japan’s factory output posted the biggest decline in a year in January, data showed on Thursday, underlining the widening economic impact of the Sino-U.S. trade war.

Suzuki conceded that global risks were heightening, though he said Japan’s economy was expected to continue expanding moderately as a trend.

Suzuki is considered as among those in the BOJ board who are more mindful of the rising costs of prolonged easing, such as the damage to financial institutions’ profits.

In a speech a year ago, he said the BOJ could raise interest rates or slow the purchase of risky assets if the costs of prolonged easing began to outweigh the benefits.

Suzuki did not directly call for a rate hike on Thursday, but he said financial institutions would benefit from higher yields, if accompanied by improvements in the economy.

With their margins squeezed by years of ultra-low interest rates and a dwindling population, Japan’s regional lenders have increased loans to borrowers with low credit standings that could sour if economic conditions deteriorate, Suzuki said.

“If the default rate of borrowers rises, banks would have to set aside more allowances for bad debt. We need to be mindful that financial institutions’ profits could then worsen rapidly,” he said in a speech to the business leaders in Mito.

Under a policy dubbed yield curve control (YCC), the BOJ aims to guide short-term rates at minus 0.1 percent and 10-year government bond yields around zero percent. As part of this effort, it buys government bonds and risky assets such as exchange-traded funds (ETF).

Reporting by Leika Kihara; Editing by Chang-Ran Kim & Shri Navaratnam

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