NAGASAKI, Japan (Reuters) – Bank of Japan board member Yutaka Harada said on Wednesday the central bank must ramp up stimulus “without delay” if a slowdown in the economy hampers achievement of its price target.
While capital expenditure and private consumption have so far withstood the impact from falling exports and output, risks to the economy were heightening, said Harada, a vocal advocate of aggressive monetary easing.
“The impact of the consumption tax hike scheduled for October this year also is a concern,” Harada said in a speech to business leaders in Nagasaki, southern Japan.
“If the economy deteriorates to the extent that achieving our price target in the long-term becomes difficult, it’s necessary to strengthen monetary easing without delay,” he said.
Reflationist-minded BOJ board members like Harada had argued in the past that the central bank must do more to quicken achievement of its price target.
However, his comment that the BOJ must act if the price target becomes hard to hit “in the long term” underscores a growing sense within the central bank that it is running out of effective tools to prop up inflation.
Harada said the planned sales tax hike in October could weigh on inflation by cooling consumption, warning that tax increases could push the economy into recession.
Recent weaknesses in exports and output could also start to hurt job growth and consumption, he said.
“The economy has been weak recently, and the same can be said about prices,” Harada said. “There’s a risk the current sluggishness observed in prices will spill over to inflation expectations, further delaying a pick-up in inflation.”
The BOJ’s nine-member board is divided between those like Harada who see room to ramp up stimulus, and those who are more worried about the rising cost of prolonged easing.
Years of heavy money printing by the BOJ have failed to fire up inflation and crushed long-term interest rates near zero, drawing criticism from financial institutions for narrowing their margins and hurting their profits.
Harada said those who argue that the BOJ’s ultra-loose policy was hurting financial institutions ignore the benefits years of monetary easing have brought to the economy.
“The deterioration of banks’ profitability is actually caused by a structural problem, which is that they are accumulating deposits despite a lack of borrowers,” he said.
Reporting by Leika Kihara; Editing by Chris Gallagher and Sam HolmesOur Standards:The Thomson Reuters Trust Principles.