Noda Says BOJ Should Avoid Ending Credit Policy Early
Bank of Japan board member Tadao Noda said the central bank shouldn’t end its emergency credit programs prematurely because that could stymie a recovery.
“We need to avoid ending measures too early,” Noda said in a speech today in Matsumoto, central Japan. Still, “having extraordinary policies in place for too long may prevent the economy and financial markets from recovering on their own, raising the risk economic activity and prices will swing.”
The central bank this month extended the credit-support programs of buying corporate debt from banks and providing them with unlimited loans to Dec. 31 from Sept. 30, citing “severe” borrowing conditions amid the worst postwar recession. Policy board members may be compelled to extend those measures further should conditions fail to improve.
“Noda subscribes to the view that the Bank of Japan will have no other choice but to extend the credit-support programs,” said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. “As a former banker, he understands how severely the economy and the global financial system were affected by the crisis.”
Noda, a former executive of Mizuho Holdings Inc., said that rising bond yields are one risk for the outlook. The yield on the benchmark 10-year bond rose to 1.38 percent today after a government report showed factory output posted its largest quarterly expansion in more than 50 years.
“Bond-yield increases that aren’t in line with an economic recovery could weaken the strength of what is already a frail recovery, so we can’t let our guard down,” Noda said business card templates.
Influence Yields
Central banks share the view that their policies of buying government bonds outright have had some influence on bond yields, Noda said. Even so, that effect is temporary and it’s hard to control bond prices over the longer term, he added. The Bank of Japan currently buys 1.8 trillion yen in government bonds from lenders each month.
Japan’s gross domestic product probably expanded for the first time in more than a year last quarter, as exports and production improved and Prime Minister Taro Aso’s 25 trillion yen ($263 billion) in stimulus spending bolstered confidence. The economy grew at a 2.4 percent rate in the second quarter, according to economists surveyed by Bloomberg News.
“Japan’s growth definitely improved sharply in the second quarter,” Noda said. “Exports, production and public investment posted large increases” in the three months ended June 30, he said.
Noda said there’s no risk of the economy slipping into a deflationary spiral, adding that price declines will moderate in the second half of the year ending March 31.
A report tomorrow is expected to show consumer prices excluding fresh food, the central bank’s preferred gauge of inflation, fell 1.7 percent in June from a year earlier, the sharpest drop since comparable figures were first compiled in 1971, according to economists surveyed.
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