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BOJ's March review to seek effective ways to deal with shocks, says deputy governor Wakatabe

BOJ's March review to seek effective ways to deal with shocks, says deputy governor Wakatabe

TOKYO (Reuters) – The Bank of Japan’s policy examination in March will discuss measures to ensure it can deal with any future shocks to the economy “effectively” and in a timely fashion, Deputy Governor Masazumi Wakatabe said on Wednesday.

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The key would be to strike the right balance between the costs and benefits of the BOJ’s massive stimulus, so it becomes more sustainable and “nimble” in responding to changes in economic developments, Wakatabe said.

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“What I’d like to emphasise is that the policy examination won’t be about dialling back monetary stimulus,” he said in a speech at an online meeting with business leaders. “It isn’t aimed solely at containing the cost of our policy measures.”

As the coronavirus pandemic forces it to maintain a massive stimulus programme for a prolonged period, the BOJ plans to announce in March ways to make its tools more sustainable.

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Wakatabe said the March review will not lead to an overhaul of the BOJ’s yield curve control (YCC) policy or its 2% inflation target. Rather, it will scrutinise the tools, such as its asset purchases, to make them more sustainable, he added.

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“Since our price target and policy framework have been working well to date, there’s no need to change them,” he said.

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Wakatabe said it was crucial to keep real interest rates, which are calculated by subtracting inflation expectations from nominal rates, at low levels.

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“Inflation expectations have weakened somewhat and the output gap has deteriorated significantly” due to the hit from the pandemic, Wakatabe said

“Since downward pressure on economic activity and prices is likely to continue for a prolonged period, it will take considerable time to achieve 2% inflation,” he added

Under YCC, the BOJ guides short-term interest rates at -0.1% and 10-year bond yields around 0% via huge bond purchases. It also buys risky assets, such as exchange-traded funds (ETF), as part of efforts to achieve its elusive 2% inflation target

Editing by Chang-Ran Kim and Jacqueline Wong