Japan’s regional financial institution foyer urges BOJ to give attention to rising prices of easing

By Leika Kihara

TOKYO (Reuters) – Japan’s regional bank lobby on Wednesday called on the central bank to focus on the rising costs of prolonged monetary easing, underlining the challenge for policymakers trying to weather growing risks to the world’s third-biggest economy.

Simmering Sino-U.S. trade tensions and slowing global demand have heightened market expectations the Bank of Japan will maintain its massive stimulus program, with some investors betting its next move could be to ramp up monetary support.

Takashige Shibato, head of the Regional Banks Association of Japan, said the BOJ’s ultra-loose policy likely helped the economy achieve one of the longest uninterrupted post-war expansion.

While various risks are clouding the outlook for Japan’s economy, the BOJ must take into account the dangers of prolonged easing such as the hit to bank profits and dwindling liquidity in the bond market.

“The BOJ said it will achieve 2 percent inflation in two years. But six years have passed” since the implementation of a radical stimulus program, Shibato said.

“The policy has provided sufficient benefits to the economy. On the other hand, various side-effects are emerging in areas like financial intermediation and bond market functions,” he said. “We hope the BOJ takes these into account.”

Shibato also said his lobby was requesting regulators to relax rules to allow commercial banks to expand business operations beyond traditional banking.

The remarks follow complains from Japan’s bank lobby head, who urged the BOJ to tweak its 2 percent inflation target so it can more flexibly whittle down stimulus.

Finance Minister Taro Aso also told parliament on Tuesday the central bank could give itself more flexibility in how it defines its 2 percent inflation target.

The BOJ is caught in a dilemma. Years of heavy stimulus have failed to fire up inflation, forcing the bank to maintain its massive bond buying program despite financial institutions having to endure weak profits from near-zero rates.

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