Veteran ruling party lawmaker Amari warns BOJ against early end to negative rates

By Leika Kihara and Kentaro Sugiyama

TOKYO (Reuters) – The Bank of Japan must avoid moving too hastily towards an exit from ultra-loose monetary policy to ensure the economy does not revert to deflation, veteran ruling party official Akira Amari told Reuters on Friday.

With inflation above the BOJ’s 2% target for more than a year, many market players expect the central bank to pull short-term interest rates out of negative territory next year with some betting on the chance of action in January or April.

“The BOJ shouldn’t rush into action because if the economy slips back into deflation as a result, it’s game over,” said Amari, a former economy minister who was among architects of former premier Shinzo Abe’s “Abenomics” stimulus policies.

An exit from ultra-loose policy can only begin when the economy is strong enough to weather the impact, he said.

“The BOJ should avoid moving too hastily, Amari said in an interview, when asked about the prospect of an end to negative rates in January or April.

The BOJ loosened its grip on long-term interest rates in July and October, moves seen by markets as a step towards dismantling former Governor Haruhiko Kuroda’s massive stimulus programme that was part of the three pillars of Abenomics.

Markets expect the BOJ’s next move to be an end to its policy of guiding short-term rates at -0.1%, though Ueda has offered few hints on how soon such a move could happen.

Japan must see inflation exceed 2% and wages rise by around 4-5% on a sustained basis to ensure the economy is strong enough to weather the risk of a return to deflation, he said.

“I think BOJ Governor (Kazuo) Ueda understands this point well,” Amari said on the need to avoid a premature exit, adding that the government likely shares a desire for monetary policy to stay ultra-loose for the time being.

Amari holds several key ruling party posts overseeing discussions on economic policy, and has regular interaction with Prime Minister Fumio Kishida.

(Reporting by Leika Kihara and Kentaro Sugiyama; Additional reporting by Maki Shiraki; Editing by Jacqueline Wong)