TOKYO- Japan will slide into mild deflation for the next three years as the coronavirus crisis crushes demand and leads to more job losses, but the Bank of Japan is unlikely to ramp up stimulus to support prices, a former central bank policymaker said.
Cutting interest rates further will hurt already weak regional lenders, which could face a build-up of bad loans as they boost lending to cash-strapped firms hit by COVID-19, Takahide Kiuchi said.
“Japan will likely see more small and midsized firms go under as the pandemic’s pain deepens, which could boost credit costs for lenders through next year,” said Kiuchi, currently executive economist at Nomura Research Institute.
“The pandemic has forced the BOJ to be more mindful of the risk of banking-sector problems, which means it can’t cut interest rates easily,” he told Reuters on Tuesday.
Under a policy dubbed yield curve control, the BOJ guides short-term rates at -0.1 percent and long-term yields around zero.
While BOJ Governor Haruhiko Kuroda has stressed his readiness to cut rates if needed, many analysts see that option as highly unlikely given the strain years of ultra-low rates has inflicted on commercial banks’ profits. – Reuters