Kiuchi: The lone dissenter to quantitative easing on the BoJ’s 9-person board.

Reuters
Tokyo

Japan’s consumer prices, excluding food and energy, are unlikely to accelerate due to falling wholesale prices, weak consumer spending and concerns wages will not rise, Bank of Japan policy board member Takahide Kiuchi said yesterday.
Real interest rates have stopped falling since the BoJ expanded its quantitative easing last year in October, suggesting the central bank’s ability to lower bond yield spreads has reached a limit, Kiuchi said.
There is also a risk the BoJ will not be able to smoothly purchase Japanese government debt for quantitative easing if domestic investors become risk averse due to overseas developments and want to hold on to more JGBs themselves.
Kiuchi is the lone dissenter to quantitative easing on the BoJ’s 9-person board, but his sobering assessment of prices and the economy highlight the lingering doubts over the central bank’s bold monetary policy experiment.
“It’s difficult to expect core-core consumer prices to accelerate from here given the economic situation,” Kiuchi said in a speech.
“Input costs for companies are falling. At the same time, households see rising food prices and worry that wages won’t keep up.”
The BoJ’s indicator of consumer prices that strips away the effect of energy costs showed consumer prices rose 1.2% in the year to October, underscoring its view of the majority of broad members that prices are in an uptrend.  However, Kiuchi argued that a further acceleration is unlikely as companies are unlikely to aggressively raise wages because of low expectations for domestic growth.
The BoJ is buying JGBs and other risk assets to guide consumer prices to 2% sometime around the second half of fiscal 2016, but this target is not likely to be met even at the end of fiscal 2017, Kiuchi said.  Recent data show an inflation target around 1% may be more appropriate given Japan’s low potential growth rate, Kiuchi said.  The BoJ’s quantitative easing was effective in narrowing the output gap, but the fact that real interest rates did not decline further after the BoJ expanded this policy last year shows quantitative easing’s impact is mainly short term, he said.