BOJ debated room for stimulus tweaks with eye on long battle with pandemic

FILE PHOTO: A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon

TOKYO (Reuters) – Bank of Japan policymakers kicked off discussions in October on ways to make their massive stimulus programme more sustainable, with one member calling for a tweak to the bank’s huge purchases of risky assets, minutes of the meeting showed on Wednesday.

The central bank kept monetary policy steady in October on the view the economy was headed for a moderate recovery thanks to a package of measures aimed at easing funding strains for companies hit by the coronavirus pandemic.

With the economy having weathered the immediate shock from the pandemic, the board also debated the long-term path toward achieving the BOJ’s 2% inflation target, the minutes showed.

One of the nine board members signalled the need to consider tweaking in the long run the BOJ’s purchases of risky assets like exchange-traded funds (ETF), it showed.

“Given that monetary easing was expected to be prolonged, the BOJ should further look for ways to enhance sustainability of the measure so it wouldn’t face difficulty conducting such purchases when (doing so) was absolutely necessary,” the member was quoted as saying.

Another member said the BOJ’s crisis-response measures, if prolonged, could delay structural reforms crucial for sustained economic growth, the minutes showed.

In a sign the board was bracing for a long-term battle to ease the strain from COVID-19, one board member said the BOJ must “deeply discuss” policy responses aimed at achieving its 2% inflation target, according to the minutes.

Under a policy dubbed yield curve control, the BOJ guides short-term rates at -0.1% and the 10-year yield around 0% via massive bond buying. It also buys risky assets such as ETFs and created a lending facility to help firms hit by COVID-19.

After keeping policy steady in October, the BOJ in December extended its crisis-response measures and unveiled a plan to examine more effective ways to hit its price goal.

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