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BOJ's Sato: Impact of QE may be diminishing slightly

Monday, December 7, 2015 - 10:44
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Bank of Japan board member Takehiro Sato said on Monday the impact of its quantitative easing is likely diminishing, as long-term interest rates have not declined much since the central bank increased debt purchases in October 2014.

[TOKYO] Bank of Japan board member Takehiro Sato said on Monday the impact of its quantitative easing is likely diminishing, as long-term interest rates have not declined much since the central bank increased debt purchases in October 2014.

Sato said the BOJ cannot buy government debt indefinitely at its current pace because eventually some financial institutions will not want sell off their JGB holdings, according to the text of a speech he gave in Nara, western Japan.

Last week, BOJ board member Takahide Kiuchi made similar comments questioning the impact of the central bank's government debt and asset purchases for quantitative easing. He said real interest rates have stopped falling.

This suggests the BOJ may have limited options should inflation fail to pick up. "Monetary easing effects appear cumulatively in theory, but in terms of positive effects and side effects, it is likely that the easing effects have been diminishing," Sato said, according to the speech text.

In October last year, the BOJ expanded its purchases of government debt an annual pace of 80 trillion yen (S$909 billion)from 60 trillion -70 trillion yen, in part due to worries about a decline in inflation expectations.

The BOJ's official view has been that this moderate expansion helped stabilise inflation expectations in the face of a large decline in oil prices.

The central bank is trying to guide consumer prices to 2 per cent by the second half of fiscal 2016, but Sato has said this target is not likely to be met.

Sato has also argued that the BOJ needs to be more flexible about the timeframe for achieving its price target.

REUTERS