Japan PM adviser urges unlimited BOJ easing, higher price goal

27 Dec

japanTOKYO (Reuters) – The Bank of Japan should buy more long-dated government bonds and a wider variety of risk asset types, including foreign bonds, to achieve 2 to 3 percent inflation, Koichi Hamada, a special economic adviser to Prime Minister Shinzo Abe, said on Thursday.

Hamada, 76, professor emeritus of economics at Yale University, also called for revising the BOJ Law that guarantees the central bank’s independence, to make it more accountable for achieving its policy objectives.”Generally speaking, the BOJ is making an effort. But there is hardly any change to its pace of ‘too little, too late’,” said Hamada, who was appointed a special adviser to Abe’s cabinet.

“It is necessary to amend the BOJ law,” he told Reuters in a telephone interview on Thursday.

The views of Hamada, who had been privately advising Abe before he was sworn in as Japan’s prime minister on Wednesday, are likely to have a significant impact on the new government’s policies.

“The BOJ should not only buy long-term bonds but purchase a wider type of assets such as commercial paper, real estate investment trusts (REITs) and shares, which will help to have an impact on the economy,” said Hamada, who taught BOJ Governor Masaaki Shirakawa when he was a student at Japan’s prestigious Tokyo University.

“I think buying foreign currency-denominated assets can also be a part of an effective monetary policy.”

Hamada said it was desirable for the BOJ to set an inflation target of 2 to 3 percent to revive the economy and to help keep sharp yen rises in check.

While Japan should not target a specific exchange rate when guiding monetary policy, the level of the yen could be one way of measuring the extent of policy loosening, he said.

“The yen’s weakening to close to 95 or 100 yen (per dollar) would be evidence of the effectiveness of monetary policy. The BOJ should ease monetary policy until inflation occurs, and the yen and prices are reacting appropriately,” he said.

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