TOKYO (AFX-ASIA) - Bank of Japan deputy governor Sakuya Fujiwara said the bank will carefully review the impact of suggested measures such as inflation targeting or increased purchases of government bonds before taking any action.
"It is because monetary policy has already entered unchartered territory that responsible policymakers are required to conduct a careful study of all possible favourable effects and negative side-effects," he said.
Fujiwara said inflation targeting that solely focuses on rising prices or hikes in outright purchases of government bonds will have both favourable and unfavourable effects on economic activity. "If we solely focus on raising prices ... then prices will eventually start to rise, though we cannot say for sure when it will start. It is also uncertain whether such a price rise would lead to sustainable economic growth," he said.
He added that even if an increase in outright purchases of government bonds had some impact, it "could also lead to an interest rate rise by increasing risk premiums and so entail the risk of an adverse impact on the economy".
The central bank has already taken efforts to prevent prices declining, with the introduction of quantitative monetary policy action on March 19, Fujiwara noted.
However, the bank will remain open minded in debates over future monetary action because, "so far, the effects of monetary easing have not been able to lift economic activity, while prices continue to be soft," he added.
"Our agony as monetary policymakers lies exactly here," Fujiwara said.
Asked his opinion on the appropriate level of the exchange rate, Fujiwara said he was a "fundamentalist", adding that the value of the yen "should be determined based economic fundamentals." He added that decisions on the exchange rate are "the jurisdiction of the Ministry of Finance", downplaying recent suggestions from the central bank's head of research that these could be included within the monetary policy remit.
"I think he only said that as a general opinion and has nothing to do with actual monetary policy," Fujiwara said. He added that the bank is not allowed by law to provide direct financing for the Resolution and Collection Corp.