Slow exit from easing to save BOJ massive losses : professor

November 30, 2017

Tokyo- By engineering a slow exit from its current massive monetary easing policy, the Bank of Japan will be able to control related losses, Columbia University Prof. Takatoshi Ito has suggested.

In a recent interview, Ito said the central bank "can avoid incurring massive losses if it raises interest rates and reduces the balance sheet slowly."

He cautioned the BOJ against hasty action, saying the exit should start "after the achievement of its 2 percent inflation target is in sight."

If, as part of its exit strategy, the BOJ reverses negative interest rates applied to a portion of private financial institutions' current account deposits at the central bank, its costs of paying interest to these institutions may swell drastically.

Ito, however, brushed aside persistent market concerns that the BOJ could fall into the red due to the policy exit, saying related losses are expected to be "temporary" as interest income will grow in the long run.

"It's important for the BOJ to maintain its 2 percent inflation target," Ito stressed, countering criticism that the goal is too high.

If the BOJ lowers the inflation target to one pct while some foreign central banks set their targets at 2 percent, the yen will rise against other major currencies, he pointed out.

The professor, former Japanese deputy vice finance minister for international affairs, is seen as a possible successor to BOJ Governor Haruhiko Kuroda, who will reach the end of his five-year term next April. Ito declined to answer a question about the possibility of his taking the top central bank post.

On what it takes to be the next BOJ governor, he cited knowledge about monetary policy as well as "communication skills to explain Japan's stances in English at international meetings." Jiji Press