Japan Aso voices caution over further BOJ easing

[TOKYO] Finance Minister Taro Aso voiced caution about the merits of further stimulus by the Bank of Japan, saying that monetary policy alone could not achieve its 2 per cent inflation target.

Mr Aso's remarks came amid speculation that the BOJ may embark on a fresh round of quantitative easing at its policy meeting on Oct 30 in a bid to nudge inflation up toward the target next year. "There's limit to what monetary policy can do to boost prices," Mr Aso told reporters on Friday after a cabinet meeting. "In the current situation, it is hard to hit the original aim with the BOJ's monetary easing alone." Given that oil prices have halved since last year it is difficult to boost prices, although cheaper oil is positive for resource-poor Japan, he said.

Mr Aso said it was up to the BOJ to decide policy, when asked whether the BOJ should deploy fresh monetary stimulus now.

Etsuro Honda, a leading economic adviser to Prime Minister Shinzo Abe, also said there was no need for the BOJ to ease policy further now, Kyodo newsagency reported on Friday.

Instead, Honda called for steps to support low-income groups to stimulate private consumption as the economy stalls. "These remarks probably reflect the government's worry about further yen weakening," said Hidenobu Tokuda, senior economist at Mizuho Research Institute. "Fresh monetary stimulus would weaken the yen further, which should boost costs of food and necessities, hitting household consumption harder." More efforts were needed to boost demand by encouraging companies to spend their cash piles on raising wages and workers' disposable income, which should in turn help boost prices, Mr Aso said. "It's not that there's no money out there, but there's no demand. Therefore prices won't rise. Governor (Haruhiko) Kuroda must be thinking a lot about that." There was no need for the central bank to change the price goal, Mr Aso said, adding that the BOJ should persist with its strategy until the target is achieved.

The central bank, which has twice deployed monetary stimulus since Mr Abe came to power in late 2012 seeking to defeat deflation, has maintained that no additional easing is needed for now.

Government sources have told Reuters that Mr Abe's administration is also cautious, fearing the impact on of a too-soft yen on consumption.

REUTERS