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Bank of Japan Governor Haruhiko Kuroda has reaffirmed the importance of a concerted policy mix that supports the economy, ahead of a key ruling party election that will almost certainly determine the country’s next prime minister. Speaking after the BOJ left its policy unchanged and fleshed out more details on its green lending program, Kuroda stressed the need to continue supporting the economy amid the lingering risks of the pandemic, including the constraints on the supply side.
Wednesday’s stand-pat decision comes a week before a ruling party election to choose Prime Minister Yoshihide Suga’s successor. The new leader of the Liberal Democrats is expected to put in place a stimulus package to help the economy get back on a firmer recovery path.
In a busy week for central banks, the Federal Reserve concludes its own meeting just hours after the BOJ rally and is likely to offer clues to its cutback plans that could keep downward pressure on the yen or lead to a near-term rally depending on how bullish Jerome Powell is on the economy.
For now, it seems highly unlikely that the BOJ will join the first steps to cut stimulus, regardless of Suga’s replacement, especially with Japanese inflation still below zero.
What Bloomberg Economics Says …
“The Bank of Japan probably has no choice but to keep the stimulus measures at the current scale, given the difficult economic conditions… Its green policy shows that it is experimenting with new approaches, but the direction of its stimulus policy is unlikely to change much in the foreseeable future. future.”
–Yuki Masujima, economist
To read the full report, click here.
Kuroda declined to comment directly on the battle for leadership, but pointed to the success of the close cooperation between the government and the central bank since a joint statement issued two months before he became governor in March 2013.
“The joint statement has played a major role in supporting the Japanese economy,” said Kuroda, who will become the bank’s longest-serving governor on the day of the PLD vote. “The BOJ intends to continue to conduct monetary policy appropriately in accordance with the statement.”
Yet Kuroda did not completely rule out reviewing the statement with the government after the installation of a new prime minister. The joint deal commits the central bank to hitting 2% inflation, a target some of the leadership contenders seem less committed than previous prime ministers.
“Kuroda will not categorically refuse to discuss the price target if the government takes up the issue,” said Shigeto Nagai, Japanese director of Oxford Economics and a former senior official in the BOJ’s international department.
Leader Taro Kono, the Japanese vaccine czar, considers the BOJ’s 2% target to be very difficult to achieve and has in the past called on the central bank to clarify its exit strategy from the stimulus plan. Yet with the pandemic continuing to weigh on the economy, the winner of the leadership election is unlikely to be in a rush to change BOJ policy.
Nagai sees the target sticking around, given the prevalence of 2% inflation targets around the world, although it may become something of a longer-term target in Japan.
Read more: Kuroda and his monetary experiment continue on record-breaking BOJ tenure
Earlier today, the BOJ reported that supply side constraints were limiting the resumption of production and exports.
Conditions deteriorated for manufacturers who fueled the recovery. Toyota Motor Corp. and other Japanese automakers have announced plant shutdowns due to shortages of semiconductors and other parts as the impact of Covid cripples supply networks in Asia.
Kuroda said it was not clear how long the impact of production shutdowns in Southeast Asia would last as countries tried to bring the outbreak under control in the Delta, but signs of a recovery were emerging.
His comments will reinforce the view that while the central bank will not add to its measures, it will continue with its stimulus measures. This will leave any additional help for the economy to the government.
Read more: Japan’s leadership rivals diverge on economic paths after Covid
As a general election looms and Japan’s state of emergency economy still struggles to regain momentum, analysts expect an economic package to top the list of priorities of the new leader.
“I don’t think the BOJ is trying to push a new PLD leader to compile a massive economic package, but whoever wins the election, the size of the tax expenditure will be at least 30 trillion yen (274 trillion yen). of dollars). They have a national election to fight for, ”said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.
The central bank also unveiled more details on its green lending program. The BOJ said it would start accepting applications immediately and start making the loans in December. Kuroda said he expected the program to start small, but eventually grow to a substantial size.
(Adds commentary from economists, details about the green loan program.)
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