By Takahiko Wada and Leika Kihara
TOKYO (Reuters) – The Bank of Japan’s new board member Toyoaki Nakamura said on Wednesday the central bank must “respond early” to downside risks that could emerge from the coronavirus pandemic.
In his inaugural news conference, Nakamura also said Japan would not see inflation pick up sustainably unless economic conditions allowed for the central bank to abandon negative interest rates.
“Looking at Japan’s current economy, we can say it’s in a pretty severe situation,” Nakamura said. “It’s important to respond early to economic developments, with an eye on conditions regarding the coronavirus pandemic,” he said.
A former executive at electronics giant Hitachi <6501.T>, Nakamura joined the BOJ’s nine-member board on Wednesday, succeeding former auto executive Yukitoshi Funo.
Japan is mired in recession as the pandemic hit exports and consumption, forcing the BOJ to ditch its efforts to achieve its elusive 2% inflation target for now and focus on supporting the economy.
Nakamura said with demand “evaporating,” it was not the right time to consider abandoning negative interest rates.
But he said Japan was forced to adopt negative rates because aggressive money printing by the BOJ failed to boost demand.
“Unless Japan returns to a situation where we can abandon negative rates, it won’t see (sustained) inflation,” he said, signalling that the BOJ should eventually seek to pull rates out of negative territory.
The BOJ loosened monetary policy in March and April focusing on steps to ease funding strains for companies hit by slumping sales from the pandemic.
The central bank has held off on deepening negative rates from the current -0.1% or cutting its 0% long-term rate target, partly on concerns over eroding financial institutions’ margins.
(Reporting by Takahiko Wada, Writing by Leika Kihara; Editing by Jacqueline Wong)
