BOJ Weighs Policy Sustainability, Side Effects: Amamiya

August 2, 2018

Kyoto- The Bank of Japan's recent tweak in its massive monetary easing is designed to strengthen the policy regime's sustainability while addressing its side effects, BOJ Deputy Governor Masayoshi Amamiya said Thursday.

"The aim of these policy measures is to strengthen the sustainability of the current powerful monetary easing, taking into account the side effects," Amamiya said in a speech in the western Japan city of Kyoto.

The BOJ "recognizes that the effects of monetary easing will be strengthened as a whole, in consideration of this sustainability," he said.

At a two-day monetary policy meeting through Tuesday, the BOJ adopted a forward guidance for policy interest rates, saying the current extremely low rate levels will remain "for an extended period of time."

The central bank also decided to allow larger fluctuations in 10-year Japanese government bond yields around its target of about zero pct. After the meeting, BOJ Governor Haruhiko Kuroda said it will tolerate long-term JGB yields rising or falling by 0.2 percentage point from the target, double the previous permissible range.

In the speech, Amamiya referred to the recent decline in JGB trading and noted, "Recently, there is a growing concern in the JGB market that the market functioning has been deteriorating."

On the side effects of the monetary easing, he said the BOJ "also recognizes the risk that, by continuing such powerful monetary easing, financial institutions' strength will be cumulatively affected by low profitability, mainly through a decrease in their lending margins."

Amamiya underscored the BOJ's commitment to its current monetary stimulus. The BOJ "will not reduce the degree of monetary easing," even though the projected timing of the central bank reaching its 2 pct inflation target has been delayed. Jiji Press