Bank of Japan Reiterates Accommodative Stance

by: Gary Dorsch

Bank of Japan Governor Toshihiko Fukui reiterated he will keep an accommodative stance as long as inflationary pressure is restrained, but said its monetary policy should respond to improvements in the economy. He also said excessive stimulus effects of central bank policy would not be good for the economy in the long run. "If the stimulus effect becomes too strong, even if prices are stable it could lead to excessive investment activity, and as a result cause big fluctuations in the economy. And that in the long term would have a negative impact on achieving stable growth under stable prices."

The BOJ scrapped its ultra-loose monetary policy of flooding the banking system with excess cash, known as quantitative easing, and will begin to drain 26 trillion yen out of the banking system in the months ahead. He reiterated the BOJ would continue to buy 1.2 trillion yen of long-term government bonds outright for a few more months, before scaling down in purchases. "It is too early to discuss when to end the zero interest rate policy, as we have only just ended our quantitative easing framework. We will not immediately head towards tightening."

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