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BOJ Can't Afford Not To Act, As Deteriorating Conditions Seen As Risk To Country's Economy

By January 22, 2016 at 6:20 am
BOJ Can't Afford Not To Act, As Deteriorating Conditions Seen As Risk To Country's Economy (Photo : Junko Kimura | Getty Images News)

Haruhiko Kuroda, the governor of Bank of Japan, cannot remain inactive with the conditions that the country is currently facing, according to a report from The Wall Street Journal.

Kuroda's plan to revive the economy and raise inflation is in trouble due to the continued turbulence in the global market.

The volatile conditions of the global market have pushed the yen sharply higher while dropping Tokyo stocks into bear market territory last Wednesday.

Japan's economy is also sputtering and the country's inflation, along with energy prices, is stuck at near zero.

All of the conditions that are happening are putting pressure on Kuroda to take action, especially as its monetary policy meeting coming on Jan. 28-29.

Yuichi Kodama, the chief economist at Meiji Yasuda Life Insurance said that BOJ's credibility is at stake with this policy meeting.

"Inaction would likely give the market the impression that the BOJ has reasons not to be able to move even if it wants to, or that [its easing program] has reached its limit," he said.

A close aide to Prime Minister Shinzo Abe said that the BOJ should act next week.

He said that "conditions for additional easing have fallen into place."

Bloomberg reports, though, that the political environment in Japan poses a complication as officials are split.

Another aide of Abe, Liberal Democratic Party lawmaker Masahiko Shibayama, doesn't agree that the BOJ should act.

He said during an interview that it is still too soon for the central bank to take further stimulus measures because the decline in the stock market may be temporary.

He also said the decline isn't caused by domestic conditions.

Japan's officials and the finance minister talked down the need for further stimulus in October 2015 as some of them were concerned that further easing could push the yen lower and hurt consumers, people familiar with the matter said at that time.

Economists say that the worst possible consequence of inaction, this time, would be a stronger yen.

A strong yen would squeeze corporate profits and threaten efforts to persuade executives that are already wary of raising workers' wages.

The yen, which has advanced the most among major currencies this year, has traded at 117.71 against the dollar on Friday morning in Tokyo.

Oil fell to its lowest since 2003 on Thursday.

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