Japan Recovery Means BOJ Can Avoid Adding Stimulus, Muto Says
Former Bank of Japan Deputy Governor Toshiro Muto
Tomohiro Ohsumi/Bloomberg
Toshiro Muto, former deputy governor of the Bank of Japan.
Toshiro Muto, former deputy governor of the Bank of Japan. Photographer: Tomohiro Ohsumi/Bloomberg
Japan’s economy can recover from a March earthquake without additional asset purchases by the central bank because the slump isn’t too severe, former Bank of Japan Deputy Governor Toshiro Muto said.
“Given that the economy likely won’t slip into a recession, I don’t think there is a case to expect additional monetary stimulus measures,” Muto said in an interview in Tokyo yesterday. He also forecast that the yen may weaken to about 85 per dollar by the end of March, a slide that would aid Japanese exporters.
A group of ruling and opposition Japanese politicians yesterday called on the BOJ to take extra steps after a record quake, tsunami and nuclear crisis triggered an economic contraction in the first quarter. After doubling the size of an asset purchase fund after the disaster, the BOJ has limited itself to creating lending programs to help companies.
“Japan’s economy is currently in a very severe state, but the economy has deteriorated because of supply constraints and a temporary slump in consumer sentiment,” Muto, 67, now the head of Daiwa Institute of Research Ltd., said in his office. “We don’t expect the economy to keep worsening further.”
Muto’s prediction on policy runs counter to the views of some economists in a Bloomberg News survey last week. Out of 14 economists surveyed, four said they expect the central bank to expand its 10-trillion yen ($124 billion) asset burying program by around August, and all but one said the next BOJ move will be to provide more monetary stimulus.
The world’s third-largest economy will probably expand 3.4 percent in the year starting April 2012 as reconstruction projects will boost demand, after contracting a projected 0.3 percent this fiscal year, Muto said.
Economic Contraction
Japan’s economy shrank at an annualized 3.5 percent pace in the three months through March, the second straight quarter of contraction, as industrial output, exports and consumer spending plunged in the aftermath of the temblor.
Toyota Motor Corp., Japan’s largest carmaker, this month forecast a 31 percent drop in profit for the year ending March 31 after the quake. The company expects domestic production will recover to 90 percent of normal levels this month, with global production to normalize by December.
Three days after the quake in northeastern Japan, the BOJ doubled a fund to pour money into the economy by buying assets from government debt to real estate investment trusts. It has also offered 1 trillion yen in funds for lenders in disaster- stricken areas, and a 500 billion yen loan program to help smaller companies.
Government Pressure
A group of lawmakers in the ruling Democratic Party of Japan and five other parties yesterday urged the BOJ to buy all the bonds to be issued for earthquake reconstruction, according to a statement released yesterday by the group. Kozo Yamamoto, a lawmaker in the opposition Liberal Democratic Party, said that 211 members of six parties signed the statement.
BOJ Governor Masaaki Shirakawa has said that BOJ underwriting of bonds could lead to sharp inflation and loss of trust in the currency. Prime Minister Naoto Kan’s second disaster reconstruction package will be half the size of the first at about 2 trillion yen, Katsuya Okada, the DPJ’s secretary-general, said this week.
“I don’t think there is a possibility that the BOJ would underwrite government bonds directly from the government,” said Muto, who served as the BOJ’s deputy chief for five years until March 2008 following a 37-year career at Finance Ministry.
Muto was the government’s first choice to succeed Toshihiko Fukui as governor in 2008, only to be rejected by the opposition-controlled upper house. Opposition lawmakers said his stint at the ministry may hamper the bank’s independence.
More Asset Buys
Should economic conditions worsen sharply, the “most probable option” for BOJ to take is to expand its asset- purchase program, and it’s also possible for it to increase its monthly buying of bonds from the market, now totaling 1.8 trillion yen a month, he said.
The yen may weaken to around 85 to the dollar by the end of the fiscal year on March 31, Muto said. The yen traded around 80.63 to the dollar in Tokyo.
“When I consider the fundamentals of Japan and the U.S., I can’t help but conclude that the long-term trend will be for the yen to weaken rather than strengthen,” he said. “Many Japanese businesses are puzzled why the currency has appreciated” given that the record earthquake damaged the Japanese economy, he said.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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