INTERVIEW: BOJ’s Unorthodox Easing “Hit Limit” in 2015

Tokyo, Jan. 28 (Jiji Press)–Former Bank of Japan Policy Board member Sayuri Shirai has said that the central bank’s unprecedented quantitative and qualitative monetary easing regime, characterized by massive purchases of mainly Japanese government bonds, “reached its limit” around the second half of 2015 as the bank was struggling to meet its 2 pct inflation target. In December 2015, the BOJ decided to introduce supplementary measures for the unorthodox easing regime, such as additional purchases of exchange-traded funds and purchases of JGBs with longer periods to maturity. “The scale of asset purchases had become too large, causing the JGB market and other infrastructure to start collapsing,” Shirai, now professor at Keio University, said in a recent online interview. “It was becoming difficult to buy JGBs at promised prices, so we needed to take measures, such as buying JGBs with longer periods to maturity,” she said. At the time, the Japanese economy was gradually recovering from the impact of the 2014 consumption tax hike, but the improvement was slow, Shirai said. “Stagnant inflation was the biggest problem,” she said, noting that prices were weak, even excluding the effects of lower energy prices. “Exports did not grow despite a weak yen, so the atmosphere was gloomy,” Shirai recalled, adding, “The effects of monetary easing were hard to discern.” On Wednesday, the BOJ released the transcripts of its policy-setting meetings held in July-December 2015. It remained uncertain when the 2 pct inflation target would be achieved, but the BOJ did not abandon it, Shirai said in the interview. Reducing the bank’s asset purchases would mean a shift in the quantitative and qualitative easing policy, she also said. Shirai said she believed that a cut in asset purchases would be “premature” because discussions within the BOJ were insufficient. In January 2016, the BOJ decided to introduce a negative interest rate policy, under which an interest rate of minus 0.1 pct was set for part of financial institutions’ current account deposits at the central bank. Shirai said that “no discussion was held at all” within the BOJ in the second half of 2015 about the advisability of introducing a negative interest rate policy. A negative rate policy is hard to understand, Shirai said, noting that the European Central Bank spent a lot of time making preparations to introduce such a scheme. Shirai said she “strongly opposed” the negative rate policy at the BOJ’s January 2016 policymaking meeting, in the belief that it was inappropriate to adopt the policy soon after the introduction of the supplementary measures for the quantitative and qualitative easing regime. At the meeting, the nine-member BOJ Policy Board decided by a close vote of five to four to introduce a negative interest rate policy, which was in place until March 2024. END [Copyright The Jiji Press, Ltd.]