BOJ could ease more if govt reins in debt: In­aba

The Pak Banker - - Front Page -

BEI­JING

The Bank of Ja­pan could buy bonds more ag­gres­sively if the gov­ern­ment com­mits to low­er­ing the world’s largest pub­lic debt, said Nobuo In­aba, a for­mer cen­tral bank of­fi­cial and a pos­si­ble can­di­date to re­place Gover­nor Masaaki Shi­rakawa in April.

“The bank is con­cerned that con­tin­ued mas­sive bond pur­chases will lead to a wors­en­ing of the na­tion’s fis­cal po­si­tion,” In­aba said in an in­ter­view. “The bank could strengthen its eas­ing and in­crease the im­pact of its poli­cies” if the gov­ern­ment com­mits to achiev­ing fis­cal health.

The yen weak­ened to a near seven-month low to­day as mar­kets ex­pect mount­ing po­lit­i­cal pres­sure on the BoJ to lead to fur­ther mone­tary stim­u­lus. The op­po­si­tion Lib­eral Demo­cratic Party, lead­ing in polls to win an elec­tion next month, has called for “un­lim­ited” eas­ing to end de­fla­tion and re­vive an econ­omy that shrank last quar­ter at the fastest pace since 2011’s earth­quake.

In­aba, who was the BoJ’s ex­ec­u­tive di­rec­tor, said that the bank’s Oct. 30 joint state­ment with the gov­ern­ment on end­ing de­fla­tion, the first of its kind, was “mean­ing­less” with­out a firm gov­ern­ment pledge to lower the na­tion’s debt, which stands at 237 per­cent of gross do­mes­tic prod­uct, ac­cord­ing to the In­ter­na­tional Mone­tary Fund. “The gov­ern­ment should make a le­gal prom­ise to main­tain fis­cal con­sol­i­da­tion in the midterm,” said In­aba, 62, who is cur­rently head of the Ri­coh In­sti­tute of Sus­tain­abil­ity and Busi­ness, a think tank.

LDP leader Shinzo Abe last week called for the BoJ to pur­sue an in­fla­tion tar­get of up to 3 per­cent and said he would re­vise the law gov­ern­ing the BoJ’s in­de­pen­dence. Ky­odo News yes­ter­day cited Abe as say­ing he may ask the BoJ to buy con­struc­tion bonds to sup- port spend­ing and would pre­fer the next BoJ gover­nor to be some­one who is in fa­vor of in­fla­tion tar­gets.

“Abe has been mak­ing var­i­ous com­ments, but what the cen­tral bank can do de­pends on how se­ri­ously the gov­ern­ment can man­age it­self to re­store fis­cal health,” said In­aba, who helped draft the BoJ law as a cen­tral bank of­fi­cial in 1998. While im­prove­ments can be made, “the BoJ law shouldn’t be al­tered due to the pol­icy of one ad­min­is­tra­tion or some law­mak­ers,” he said.

The yen was at 81.27 per dol­lar at 10:52 a.m. in Tokyo, af­ter ear­lier weak­en­ing to 81.59, the low­est since April 25, as the mar­ket con­tin­ues to price in more eas­ing. Ja­pan’s Topix In­dex closed the morn­ing ses­sion up 1.4 per­cent, head­ing for the big­gest three- day gain since March 2011 as the weak­en­ing yen im­proves the out­look for ex­porters.

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