Pan­demic may fire up Ja­pan's in­fla­tion: economist

The Pak Banker - - MARKETS / SPORTS -

The coro­n­avirus shock is boost­ing the amount of money flow­ing into Ja­pan's econ­omy and may fire up in­fla­tion, achiev­ing what years of ul­tra-loose mone­tary pol­icy failed to do, the cen­tral bank's for­mer top economist, Hideo Hayakawa, said on Tues­day.

The Bank of Ja­pan has been print­ing money ag­gres­sively for years as part of a pol­icy of quan­ti­ta­tive eas­ing, hop­ing to spur con­sump­tion in the world's third big­gest econ­omy and reach an elu­sive in­fla­tion tar­get of 2%.

But most of the money piled up in fi­nan­cial in­sti­tu­tions' re­serves in­stead of spread­ing out across the econ­omy, as risk-averse Ja­panese firms stayed wary of boost­ing spend­ing.

Af­ter COVID-19 struck, how­ever, the money printed by the BOJ is trick­ling down to house­holds and com­pa­nies, as the gov­ern­ment ramps up spend­ing and com­mer­cial banks boost lend­ing to cash­strapped firms, said Hayakawa.

"Money is flow­ing into com­pa­nies and house­holds, lead­ing to a surge in sav­ings," Hayakawa, whose views are closely tracked by in­cum­bent pol­i­cy­mak­ers, told Reuters. "Con­sump­tion could boom once the pan­demic sub­sides, push­ing up growth and in­fla­tion."

Even if that sce­nario is not reached for years, pol­i­cy­mak­ers should not as­sume that per­sis­tent de­fla­tion will cap bond yields, al­low­ing Ja­pan to run a huge fis­cal deficit at low cost for­ever, he said. "There's a strong be­lief among Ja­panese pol­i­cy­mak­ers that prices will never perk up, and so it's okay to keep run­ning a huge fis­cal deficit," said Hayakawa, who is now a se­nior fel­low at the Tokyo Foun­da­tion for Pol­icy Re­search.

"But you never know how COVID-19 could af­fect prices. The big­gest fear for the BOJ is a steady rise in in­fla­tion," he said, adding that such an in­crease would force the bank to con­sider whit­tling down stim­u­lus without spark­ing an un­wel­come spike in yields.

Bank lend­ing has hit a record high in re­cent months as com­pa­nies hoarded cash to tide over the sweep­ing im­pact of the pan­demic.

De­posits also rose to a record 786 tril­lion yen ($7.4 tril­lion) in June and surged 8.3% in July from a year ear­lier, as house­holds saved some of the cash doled out by the gov­ern­ment in its steps to cush­ion the dis­ease blow.

Mean­while, Ja­panese fast-food restau­rant group Colowide Co ex­tended its hos­tile bid for ri­val Oo­toya Hold­ings af­ter fail­ing to se­cure enough shares by Tues­day's dead­line, de­spite of­fer­ing a hefty pre­mium. The bid has at­tracted wide­spread pub­lic­ity not only be­cause hos­tile of­fers are un­com­mon in con­sen­sus­driven Ja­pan, but also due to the pop­u­lar­ity of Oo­toya, a ca­sual din­ing chain known for its home-style dishes.

Colowide, which runs sev­eral pop­u­lar pub chains and al­ready holds a 19% stake in Oo­toya, said it was giv­ing share­hold­ers un­til Sept. 8 to ten­der their shares.

It has of­fered to buy the shares at 3,081 yen per share, a 46% pre­mium to their ear­lier value. Colowide also said it would carry out the pur­chases if it can se­cure at least 40% own­er­ship of Oo­toya, low­er­ing a pre­vi­ous tar­get of at least 45%.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.