BOJ Needs to Expand Stimulus Now, Veteran Economist Sinai Says

  • Economist says 'situation cries out for more stimulus' quickly
  • He says Japan central bank should 'modestly' enhance purchases

The Bank of Japan should bolster stimulus as quickly as possible because the country’s inflation outlook suggests it won’t reach its price target even after three years of record asset purchases, said noted economist Allen Sinai.

“The situation cries out for more stimulus,” Sinai, president of New York-based Decision Economics Inc., said in an interview Wednesday. “It doesn’t look like 2 percent is in sight” by the central bank’s timetable of around April 2017, he said during a visit to Tokyo to meet policy makers.

Yen gains, stock declines and falling oil prices all create obstacles for Governor Haruhiko Kuroda in meeting the goal he initially aimed to achieve around last year. With market turmoil led by China, a chance has emerged for further easing when the BOJ board next meets on Jan. 28-29, according to JPMorgan Chase & Co. and SMBC Nikko Securities Inc.

“The sooner the better,” Sinai said, referring to the timing of additional monetary stimulus. The BOJ “should step up purchases of bonds and stocks, not hugely but modestly, and also promise to do more if needed to achieve the 2 percent target.”

The size of the BOJ’s balance sheet has swelled to about 75 percent of the Japanese economy as the central bank has increased bond holdings at an annual pace of 80 trillion yen along with exchange-traded funds and real investment trusts. Sinai said the ratio of purchases to GDP shouldn’t stop the central bank from buying more as there is no theoretical stopping point.

Sinai’s call matches an increasing sense among Japan economists that the Jan. 28-29 BOJ policy meeting is in play.

JPMorgan’s chief Japan economist  Masaaki Kanno, a former BOJ official, sees a rising possibility for stimulus expansion then, considering recent market turbulence. Koya Miyamae, an economist with SMBC Nikko Securities, said he’s starting to see a chance of a move, when earlier he saw no possibility for that meeting.

In a Bloomberg survey before December’s policy meeting, all but one of 38 economists said the BOJ won’t be able to meet the inflation target as the bank forecasts.

Sales Tax

Sinai, who has worked as an economist for more than four decades and personally known five Federal Reserve board chiefs in his career, also said Prime Minister Shinzo Abe should postpone a planned sales tax increase in April 2017.

“It’s a mistake” to raise the tax, Sinai said. “There is no macro-policy economist in the world who would say ‘raise taxes’ if the goal is to increase consumer spending.”

Sinai has continually signaled his support for Abe’s economic policies since December 2012. In January 2015, he said Japan’s economic policy and the BOJ were on the right track.

In 2013, Sinai correctly predicted that the yen could depreciate to “way over” 100 against the dollar. The yen traded at 117.35 per dollar as of 1:42 p.m. in Tokyo on Thursday.

Also in 2013, he correctly forecast the Dow Jones Industrial Average would rise to 18,000 over the following two years. The benchmark gauge peaked above that level in May last year.

Sinai said he thinks the currency is ultimately headed toward 130 this year as the dollar is likely to strengthen.

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