MUFG chief: BoJ should revisit 2% inflation target

By BLOOMBERG

NEW YORK • The Bank of Japan (BoJ) should consider modifying its inflation target because the economy is improving even without spurring prices, according to the CEO of the nation’s biggest bank.

An ageing population and declining birth rates contribute to a “lower potential inflation rate and lower potential growth rate”, Mitsubishi UFJ Financial Group Inc (MUFG) CEO Nobuyuki Hirano (picture) said on Wednesday in an interview in MUFG’s Manhattan office.

“The question here is whether we need to keep 2% target inflation rate as it is, given the fact that the Japanese economy continues to grow and employment environment is favourable.”

Easing the inflation target would give the central bank room to make changes to its ultra-low interest-rate policy, which has crimped banks including MUFG by squeezing their lending profitability. The BoJ’s next meeting ends on July 31, and there’s speculation that officials are looking for ways to keep their stimulus programme sustainable while reducing the harm it causes in markets and to lenders.

While Japan’s consumer prices have been rising for more than a year, core inflation was only 0.8% in June, far from the central bank’s target. Governor Haruhiko Kuroda and his board are expected to lower their price forecasts at next week’s meeting while also avoiding any change in the inflation target by reiterating a commitment to reaching the 2% goal.

“Now the inflation rate is constantly in positive zone, that’s good news,” Hirano said, adding that he has frequent discussions with the BoJ. Still, “it has been a difficult time for financial institutions or banks who rely on net interest income as the interest rate stays at almost zero or sometimes negative”.

Hirano, 66, was an early critic of negative rates when they were introduced in Japan in early 2016.

In April of that year, he said the policy contributed to anxiety among households and companies and that prolonging it may weaken financial institutions.

MUFG’s shares have slumped 16% this year, more than those of Sumitomo Mitsui Financial Group Inc and Mizuho Financial Group Inc.