A Bank of Japan Policy Board member said Wednesday that the central bank decided on the surprise additional monetary easing last month as it was important to show the central bank’s commitment to its inflation target and to “take preemptive action” to deal with the recent slowing pace in price increases.
But Sayuri Shirai noted that the BOJ will not implement further stimulus “automatically” even if Japan’s economy grows more slowly than expected.
“I concluded that it was necessary to give first priority to ensuring the path toward the 2 percent price stability target by means of additional action,” she said at a meeting with business leaders in Hiroshima, referring to the decision on the extra steps at the monetary policy meeting on Oct. 31.
The risk of taking no action would have been bigger when deflationary sentiment remains in the corporate and household sectors, she said at a press conference after the meeting.
Shirai, who had long been seen as an opponent of additional easing steps, was one of the five BOJ policy members who voted for the extra easing at the Oct. 31 meeting.
The central bank would need to further loosen its credit grip when downside risks to its outlook for economic activity and prices become evident, requiring the bank to lower its outlook significantly, and when the credibility of the BOJ’s monetary policy conduct is at risk of being questioned, Shirai told the business leaders.
There was a higher likelihood this time that the two cases would materialize, she said, citing the consumer price index and other indicators related to mid- to long-term inflation expectations showing some decline.