Aiming for a surprise effect is one way the Bank of Japan can maximise the impact of any further monetary easing, Economics Minister Akira Amari said on Wednesday, saying that the central bank still had a role to play in ensuring a sustained end to deflation. But Amari added that Japan should not rely on monetary policy alone in reviving the economy and showed no appetite to pressure the central bank to expand stimulus immediately.
While there is a good chance Japan can achieve the BoJ's ambitious goal of accelerating inflation to 2 percent early next year, all three arrows of "Abenomics" - fiscal and monetary stimulus as well as an aggressive growth strategy - must all be deployed to ensure success, he said. "The BoJ still has a role to play and it remains primarily responsible (for achieving its price target). But the government can't sit idly by," he told Reuters in an interview.
The BoJ has stood pat on policy since deploying an intense burst of stimulus last April, when it pledged to accelerate inflation to 2 percent in roughly two years via aggressive asset purchases in a country mired in deflation for 15 years. Markets are rife with speculation that the BoJ will expand monetary stimulus again in coming months to cushion the pain from a sales tax hike from 5 to 8 percent in April, which is set to hit private consumption even before exports pick up.
Amari said it was up to the BoJ to decide if and when to ease policy further and side-stepped questions on whether it should expand stimulus if the impact of the sales tax hike next month proves bigger than expected, or if its price target appears difficult to achieve. But he said that surprising markets with the timing and scale of its action was one way the BoJ could maximise the effect of any further policy steps it takes in the future.
"It's among the skills of a BoJ governor to surprise markets in a good way," he said, suggesting the central bank does not necessarily have to give advance signals to markets if it were to act again. Amari said he saw no need for the BoJ to worry about the drawbacks of ultra-loose monetary policy, such as excessive risk taking by companies, in considering whether to ease further.
He also dismissed views that further policy easing might draw criticism from the global community that Japan is intentionally weakening the yen to give its exports an unfair trade advantage. "The yen has only fallen back to levels seen before the collapse of Lehman Brothers," he said. "It's therefore misguided to call this yen manipulation." Japan's annual consumer inflation hit a five-year peak of 1.3 percent for two straight months in January, although it remains well below the central bank's 2 percent target.