The Bank of Japan has no need to further increase monetary stimulus when the policy board meets this month, said a professor who has collaborated on research with Governor Haruhiko Kuroda.
In contrast with economists from JPMorgan Chase & Co. and Goldman Sachs Group Inc., who are forecasting that Kuroda will take action on July 29, Masahiro Kawai said that like the Bank of England after the Brexit vote, the BOJ could stand pat. He also said the level of the Japanese currency leaves policy makers with breathing room to keep examining the strength of inflation and the economy.
“Even Britain decided to wait and see what the impact of Brexit will be. That’s a very big factor” for the BOJ, Kawai, 68, said in an interview in Tokyo on Friday. “I don’t think the BOJ is in a situation where it has to move now.”
Inflation is “holding up” and “the impact of oil will diminish and that will be positive for CPI,” he said. “Japan’s economy isn’t about to collapse.”
Kawai, a professor at the University of Tokyo, worked for Kuroda at the Ministry of Finance from 2001-2003 when the central bank chief was the top currency bureaucrat. During that time, they co-wrote an opinion piece urging the BOJ to adopt a 3 percent inflation goal and increase the monetary base through asset purchases. Kawai was made an adviser to the BOJ in September 2014.
BOE Governor Mark Carney unexpectedly left the bank’s policy unchanged Thursday as the bank said more time is needed to assess how Britain’s June 23 vote has affected the economic outlook.
In addition to the BOE’s decision, oil is no longer on a downward trend, and the U.S. and China -- the world’s two biggest economies -- are solid, Kawai said. “That makes it hard to imagine” the BOJ will add stimulus this month, he said.
Kuroda would have to expand easing if the yen breaks 100 per dollar and stays there, which would increase risks to achieving the 2 percent price target, Kawai said. That level of yen would also require the Ministry of Finance to intervene in the market, he said. The yen traded at 106.08 per dollar as of 6:31 p.m. in Tokyo.
Etsuro Honda, one of Prime Minister Shinzo Abe’s economic advisers, said this week that the BOJ should add stimulus this month.
“I will really want to know why if there is a decision not to do anything,” Honda said. “Markets will react and the yen will probably strengthen.”
Japan’s consumer prices dropped 0.4 percent in May.