The new Bank of Japan leadership won’t be able to raise interest rates this year as the central bank missed the best opportunity to do so in 2017, former BoJ board member Sayuri Shirai said on Wednesday.
Stable markets, solid economic growth and a tightening job market would have allowed the BoJ to kick off the process of normalizing its crisis-mode stimulus last year, Shirai said, Reuters reported.
But the recent market sell-off has made it difficult for the central bank to seek an exit from ultra-easy policy, underscoring the challenges BoJ Governor Haruhiko Kuroda faces heading into his second, five-year term, Shirai said.
The BoJ has been slowing its bond purchases recently, which traders have described as ‘stealth tapering’, though a decisive move to normalize policy has proven tricky partly because inflation continues to lag the central bank’s 2% target.
“The BoJ should be dialing back stimulus to prepare tools to deal with the next recession, which could come around 2019. The best chance to do this was last year,” Shirai told Reuters.
“With that opportunity missed, the BoJ won’t be able to move for quite a long time. It might be tough for the new leadership to normalize policy,” she said.
Shirai, a former International Monetary Fund economist who served at the BoJ board until March 2016, retains close contacts with incumbent and overseas policymakers.
The government last week reappointed Kuroda for another term and chose an advocate of bolder monetary easing as one of his deputies, a sign policymakers are in no rush to turn off a sweeping stimulus program.
