Imagine you are a central bank which has done QE for 30 years, kept rates negative for almost a decade, purchased more than 100% of the country’s GDP in bonds, and is actively propping up the stock market by buying billions in ETFs and REITs, and still your economy remains stagnant? Well, if you are Kuroda you stay the course and hope for a miracle, but if you are Goushi Kataoka, the BOJ governor who is rapidly emerging as Turbo-Kuroda and perhaps angling to be the next head of the Japanese central bank, the answer is simple: you do even moar.
Speaking in a briefing Kataoka, who joined the BOJ in 2017, said on Thursday that the coronavirus pandemic may weigh on the economy – which had never managed to stabilize ever since Kuroda unleashed monetary hell in 2012 – longer than initially expected, warning of heightened risks to the central bank’s forecast of a moderate, export-driven recovery. Kataoka also stressed the BOJ’s readiness to ramp up stimulus if needed, reinforcing market expectations Japan would lag other countries in exiting crisis-mode policies.
“Given recent domestic and global economic developments, the need for bolder steps is heightening,” Kataoka said.
In a speech, Kataoka said Japan’s economic outlook was bound with uncertainty with consumption seen remaining in a “severe state” due to state of emergency curbs to combat the pandemic. “Risks to consumption are heightening,” with a spike in Delta variant cases forcing Japan to maintain curbs on economic activity, he said. “There’s a good chance the impact of the pandemic may last longer than expected.”
Underscoring the likelihood the Japan may soon see even more monetary easing, Fumio Kishida – who is challenging Prime Minister Yoshihide Suga to become ruling party chief – said Japan must “not fall behind” other countries in supporting their economies with expansionary fiscal and monetary policies.
An advocate of aggressive monetary easing, Kataoka has been a consistent, sole dissenter to the BOJ’s decision to keep its interest rate targets unchanged, saying the bank needs to improve its credibility by showing a stronger commitment to achieving its 2% inflation target, i.e., even moar QE, ETF buying, even more negative rates, etc.
“It’s desirable to cut negative interest rates further and lower long-term rates through bond buying,” Kataoka told reporters Thursday, adding that the bank will be watching climate change issues, while making efforts to hit its price goal. As a reminder, “climate change” in addition to “covid” have become the two scapegoats by central bankers giving them a green light to do whatever they want to boost their asset buying in the name of higher inflation, even when inflation is already soaring.
“Personally, I believe the BOJ must strengthen monetary easing” as inflation will remain distant from the bank’s 2% target for years even if the economy were to recover, he said.
His calls for bolder monetary easing steps have not gained support from the rest of the board at the BOJ’s policy meetings.
Under a policy dubbed yield curve control, the BOJ guides short-term interest rates at -0.1% and 10-year bond yields around 0% through massive asset purchases.
While inflation remains well below its 2% target, the rising cost of prolonged easing has forced the BOJ to steadily slow bond buying and focus on measures to mitigate the hit to bank profits from years of ultra-low interest rates.