BoJ warns trade protectionism could hurt Japan’s growth

TOKYO: Bank of Japan (BoJ) board member Makoto Sakurai has warned the spread of protectionist trade measures was creating uncertainty in the global economy and could result in Japan’s economic growth performing below BoJ projections.

Sakurai, who is seen as representing the central bank’s mainstream view on monetary policy, said the BoJ should continue its strong monetary easing for the time being, while also monitoring the side-effects of prolonged stimulus.

Sakurai made the comments in a speech to business leaders in Akita, northeastern Japan, as the International Monetary Fund cut Japan’s economic growth forecast for 2018, warning the country faced increased risks from global trade uncertainty.

The BoJ’s policy board forecast Japan’s economy would grow 1.5% in the year to March 2019, and 0.8% in each of the following two years - a pace that the BoJ also considers to be its growth potential.

However, “there’s a risk that growth could fall short of such main projections depending on the extent of protectionist moves and capital outflow from emerging economies,” Sakurai said.

He later told a news conference that given Japan’s solid economic growth, there was at present no need for further easing in the face of uncertainty.

The Nikkei share average fell to a one-month low yesterday as markets sold off globally, in part owing to investor concerns about rising market interest rates in the US.

“Sakurai was clearly putting focus on downside risks. In addition, today’s tumbling share prices should show the need to watch instability in the global financial markets as well,” said Izuru Kato, chief economist at Totan Research. “Raising interest rates in such an uncertain environment would be a gamble for the BoJ’s policy board. As such, the bank will take a waitand-see stance for the time being.”

Japan’s inflation is struggling to achieve the BoJ’s 2% target even though economic demand is stronger than economic output and so growth has exceeded potential, Sakurai said.

“It’s hard to think lack of demand is the cause of sluggish price growth,” he said.

He said a stubborn deflationary mindset among the public and enhanced corporate productivity to cope with labour shortages were holding back inflationary momentum. — Reuters