TOKYO, Nov 5: Inflation targeting by the Bank of Japan through buying more securities is unnecessary, a board member said on Monday as lawmakers prepared to submit a bill to parliament forcing the bank to target prices.
If the BoJ buys a massive amount of government bonds to achieve an inflation target, market concerns that the price of government bonds may fall will spur an increase in long-term interest rates, said central bank policy board member Miyako Suda.
Similarly, the market function will likely be undermined if the central bank buys massive amounts of stocks and corporate bonds to provide liquidity. It will also hurt the BoJ’s financial health and risk its credibility, she told local business leaders in Saitama prefecture, just outside Tokyo.
A battle is heating up between the government and the bank over how best to tackle deflation in Japan, which has seen consumer prices erode for 24 straight months, crippling company profits and further damaging the weak economy.
Inflation targeting carries its own risks and would not dramatically alter the central bank’s existing stance of aiming to achieve stable prices, said Suda.
The BoJ will face calls for even more forceful measures to reach such a target, with much higher risks or side-effects.
The bank has promised to bring the economy to a condition where growth in consumer prices is zero or above (so) it is virtually promising to seek a certain price by continuing the current super-easy policy.
But a group of lawmakers said Friday they would submit legislation to parliament this month to force the BoJ to adopt a specific price target of around two per cent in a bid to fight deflation.
The revised law would permit the bank to buy stocks and foreign government bonds held by investors resident in Japan in its day-to-day market operations, said Hideyuki Aizawa, head of the ruling Liberal Democratic Party’s stockmarket support panel.
However, the present parliamentary session expires on December 7, and analysts doubt the bill would be passed this time around with little support from leading politicians.
UBS Warburg political analyst Shigenorei Okazaki said there was little chance the bill would be passed by parliament because neither Prime Minister Junichiro Koizumi nor Finance Minister Masajuro Shiokawa backed it.
Late last month, the central bank warned consumer prices a key indicator of inflation or deflation would fall between 1.0 per cent and 1.1 per cent in the current year to March 2002, compared with an earlier prediction of a mere 0.4 per cent to 0.8 per cent slide.—AFP