By Leika Kihara
TOKYO (Reuters) – The Bank of Japan will continue to seek ways to improve its policy framework to mitigate the cost of monetary easing, board member Hitoshi Suzuki said, warning of the strain prolonged ultra-low interest rates could inflict on bank profits.
Japan’s banking sector remains stable and corporate funding pressures are easing, though any further delay in the nation’s economic recovery could increase credit costs for financial institutions, said Suzuki, a former commercial banker.
“We will continue to seek room to further improve our monetary policy by carefully weighing the effect and cost of monetary easing,” Suzuki said in a speech on Thursday.
“In doing so, I believe we must pay close attention to the accumulating cost of monetary easing.”
Suzuki has voted with the majority of the board in maintaining the BOJ’s massive stimulus programme, but has repeatedly warned of the earnings hit to banks from prolonged ultra-low rates.
In March, the BOJ fine-tuned its monetary policy framework to make it more sustainable including by allowing bond yields to move more flexibly around its 0% target.
Suzuki said Japan’s economy is set to continue recovering but warned that growth may undershoot expectations if the spread of the Omicron coronavirus variant hurts consumption, or supply bottlenecks persist.
“If the impact of supply constraints are bigger or lasts longer than expected, there’s a risk economic growth may further undershoot expectations” next year, Suzuki said.
Japan has lagged other advanced nations in its economic recovery from the COVID-19 pandemic as state of emergency curbs to combat the virus weighed on consumption.
While the Sept. 30 lifting of the curbs has given rise to hopes of a rebound in consumption, supply bottlenecks and parts shortages have disrupted manufacturers’ production and weighed on the export-reliant economy.
(Reporting by Leika Kihara; Editing by by Muralikumar Anantharaman & Shri Navaratnam)
