Reuters

Hiroshima

 A Bank of Japan board member who voted for last month’s huge monetary expansion defended the move yesterday, saying that failing to act would have cast doubt on the bank’s determination to hit its price goal and undermined its credibility.

Having deployed “the maximum scale of stimulus possible,” the BoJ can now wait to see how much the move will support the economy and prices, Sayuri Shirai said, signalling that no further monetary easing was necessary in the near term.

“We don’t ease policy each time (economic and price) growth undershoots our expectations,” she told a news conference.

Shirai, one of two academics who held casting votes in last month’s close-call decision, said she initially thought about holding off on further boosting the stimulus.

But she eventually decided to support Governor Haruhiko Kuroda’s expanded stimulus plan to head off the risk of slowing inflation and demonstrate the BoJ’s conviction to achieve its 2% inflation target.

“By not acting, the BoJ might risk its credibility. Such a circumstance would not only render my outlook unfeasible but would also undermine the feasibility of the 2% target,” she told business leaders in Hiroshima, western Japan.

Shirai urged companies to help Japan beat deflation by raising wages and capital expenditure. The BoJ led by example on Tuesday saying it was granting its board a salary increase of 1.3%, the first pay raise in nine years.

The BoJ stunned markets by expanding a massive monetary stimulus drive last month as the economy slipped into recession.

The easing was decided by a 5-4 vote, with dissenters arguing that the cost of easing policy outweighed the benefits, and doubting whether printing more money would help build up inflation expectations.

Shirai, a former International Monetary Fund economist, said the BoJ should allow itself more than two years to meet its 2% inflation target if it wants to achieve that goal “without putting excessive burdens on households and companies.”

Given weak demand, inflation may slip below 1% in coming months and the economy may suffer negative growth in the current fiscal year ending March 2015, she said.

“Last month’s easing pre-empted such risks,” she said.

Shirai was among the five board members who voted for expanding QQE last month, though she made an unsuccessful proposal to water down the BoJ’s commitment to hit its price target in two years.