INTERVIEW: BOJ Needs to Raise Policy Rate to 1.5 Pct

New York, July 28 (Jiji Press)–The Bank of Japan needs to raise its policy interest rate from the current 1.0 pct to 1.5 pct to fight inflation reflecting higher import prices amid the yen’s weakness, economist Paul Sheard has said. The BOJ could adopt a somewhat bolder monetary policy after taking a careful approach on long-standing concern that deflation might return if it raised the rate too quickly, Sheard, former executive vice president at major U.S. financial information service business S&P Global Inc., said in an interview Monday. He spoke in Japanese. The central bank should increase its unsecured overnight call rate target by 0.25 percentage point twice to take it to around 1.5 pct, he added. After the hikes, the BOJ could see how things go, and it should adjust the rate a little more if high inflation continues, Sheard said. The BOJ will hold a two-day monetary policy meeting from Thursday after raising the call rate target last month by 0.25 point to around 1.0 pct, a level unseen in 31 years for a BOJ policy rate. He explained structural factors behind the yen’s historic depreciation other than the gap in Japanese and U.S. interest rates. The yen has taken an additional blow from recent rises in crude oil prices, which hit the country where electricity generation from nuclear power plants had decreased after the March 2011 earthquake and tsunami that heavily damaged northeastern Japan, Sheard said. He criticized the aggressive investment plans in 17 strategic sectors laid out by Prime Minister Sanae Takaichi’s administration, saying that the plans do not strike very innovative. The decreasing and aging population is giving a headwind to the Japanese economy, he said, stressing the importance of accepting more foreign workers to energize the economy. END [Copyright The Jiji Press, Ltd.]