Normalizing quantitative easing "difficult": BOJ policymaker

A Bank of Japan Policy Board member on Thursday voiced the view that winding down U.S. quantitative easing is a "difficult" process and the Federal Reserve made an appropriate decision in refraining from tapering its ultra-easy monetary measures at this time.

The U.S. central bank "appropriately made the decision based on economic conditions," Takahide Kiuchi told a news conference in Kushiro, Hokkaido, speaking of the Fed's decision Wednesday to continue buying $85 billion of government and mortgage-backed bonds a month.

"It is difficult to normalize unconventional policy involving massive purchases of government bonds," Kiuchi said, indicating the BOJ could also face difficulty when it needs to scale back its even larger bond-purchasing program in the future.

Regarding prospects of the bank's monetary policy, Kiuchi said further monetary easing may be necessary depending on economic conditions. But he also expressed the view that the BOJ needs to refrain from doing so on a large scale as there are many side effects to asset purchases.

Kiuchi backed the government's plan to raise the nation's sales tax in April, as the BOJ's monetary easing has been conducted on the premise of the government pursuing restoration of fiscal health.

"The sales tax hike is unlikely to have a significant impact on the medium- to long-term trend of the Japanese economy," he said, while arguing that the bank would not need to consider additional easing even if the economy were to sink as a result of the tax increase.

Earlier in the day, Kiuchi warned of downward risks for the domestic economy, citing uncertainty regarding emerging economies.

"Basically, I believe the economy's positive cycle will be maintained" even with the planned sales tax hike in April, Kiuchi said. "But personally, I consider (the impact of) downward risks will be slightly bigger, mainly because of heightening uncertainty about overseas economies, especially emerging economies."

While overseas economies are expected to pick up as a whole, Kiuchi said, uncertainty remains over whether the United States and other developed economies can make up for a slowdown in emerging economies and fully support the global economy.

From this perspective, Kiuchi said, he is paying attention to the movement of U.S. long-term interest rates, crude oil prices as well as the U.S. labor productivity rate, which has been improving slowly recently.

On the domestic front, he is monitoring the level of increase in corporate spending, which has been lagging behind public investment, consumption and housing investment, as well as gains in wages and how they will help to stimulate consumption at a time when the pace of yen weakening and stock rises appear to have been slowing down, Kiuchi said.

On the central bank's goal to achieve 2 percent inflation in about two years, Kiuchi called for changing the time frame to "medium- to long-term," saying there is "major uncertainty" about achieving the goal.

He also said that the bank should flexibly review its monetary policy after conducting the current easing policy for about two years following its introduction in April, citing a risk of the policy's side effects exceeding the positive effects if the large-scale easing is prolonged or strengthened.

"If expectations heighten that quantitative and qualitative monetary easing will continue for the long term, it could lead to the forming of imbalances in financial aspects, as the measure entails asset purchases on an unprecedented scale," he said.

At the bank's policy board meeting on Sept. 4-5, Kiuchi proposed that the BOJ should aim to achieve the 2 percent inflation target in the medium- to long-term and designate the current monetary easing policy as an intensive measure with a time frame of about two years, but it was turned down by a majority vote.