NARA: Bank of Japan board member Takako Masai said the global economy is on track for a rebound around mid-year as manufacturing activity picks up, signalling that risks such as the coronovirus outbreak do not warrant an immediate expansion of stimulus.

In a sign of concern over the cost of prolonged monetary easing, the former commercial banker said the BoJ must be ready to act not just to boost growth but to prevent its ultra-loose policy from disrupting the banking system.

“If there are signs of disruption in financial intermediation, we will of course take necessary steps including those to make our stimulus programme more sustainable, ” Masai told reporters after meeting with business leaders in Nara, western Japan.

Masai added that she saw no imminent problems to Japan’s financial institutions, as they had sufficient capital buffers.

The BoJ’s nine-member board is split between those who see room to expand stimulus, and others who are reluctant to do so on worries over the rising cost of prolonged low rates such as the hit to financial institutions’ profits.

Masai, who has consistently voted with the majority of the board, said the coronovirus epidemic is among risks to the global economy and may hurt Japanese business sentiment.

A sales tax hike that rolled out last October could also weigh on consumption over time by reducing households’ real income, she said yesterday.

But there was no change to the view that Japan’s economy would expand moderately thanks to robust capital expenditure and signs of pick-up in global manufacturing activity, Masai said.

“There seems to be signs of recovery in the manufacturing sector” as IT firms saw demand perk up, Masai said.

“My assessment is that if these developments continue, overseas economies will pick up through the first half of 2020, ” she said in a speech to business leaders in Nara.

The remarks suggest that while the BoJ stands ready to ease policy further if risks derail Japan’s fragile economic recovery, it sees no imminent need to act.

 - Reuters