BOJ Urges Government to Take Bolder Steps for Fighting Great Depression-like Pandemic Downturn

With the economy further receded into a situation like the Great Depression in the 1930s, some Japanese central bankers urged the government to take for even bolder steps than those policies that were announced last month. Many board executives of the central bank, Bank of Japan (BOJ) shared views on Monday, May 11, 2020, that the decision making of the government needed to focus on a wider scope to expand its financial injection to continue the circulation of the country’s economy.

Great Depression-like Economic Situation

Likewise other countries, the Japanese economy has been harshly devastated and is considered to be rolling into the Great Depression-like situation due to the widespread impact of the COVID-19, a disease caused by the coronavirus pandemic. Since the pandemic situation is expected to be further escalated in the coming months, some Bank of Japan (BOJ) board members called for a broader economic rescue plan.

A source from one of the board members of the BOJ told Reuters, “Policymakers must act boldly to avoid the repeat of the Great Depression,” citing the scope for further expansion of the current fiscal and monetary support sought by the government. The source added by saying that the new plan must go beyond what was decided at the April review and extend stronger coordination with the government and a review of existing bank policy tools.

Similarly, a second source, quoting the opinion shared by another board member, said, “The BOJ must re-examine the effectiveness of its current policy to prevent Japan from slipping back into deflation.” At a meeting on April 27, the BOJ laid down its stimulus package and pledged to buy an unlimited amount of government bonds to keep borrowing costs low and help the government’s way out from the pandemic crisis.

BOJ’s Target to Pump Money for Economy

The global virus pandemic has forced to shut the Japanese economy and the BOJ has been facing challenges as the economy is pushing towards a recession. Anticipating a further economic downturn in a quarterly forecast released at the April meeting, the BOJ projected inflation would fall short of its elusive 2% target for at least the next three years.

Without identifying the board members who involved in the decision-making, the BOJ released a summary of the executives’ opinions voiced at its rate review roughly 10 days after the meeting.

In summary, several members shared their concerns that the economic slump of the country caused by the pandemic could add further strain to financial institutions through a spike in bad loans. One board member was quoted as saying, “The achievement of our price target will be delayed as the economy could face a contraction as sharp as during the Great Depression in the 1930s.”

Under a policy dubbed yield curve control, the BOJ has made policies to guide short-term interest rates at -0.1% and long-term rates around 0% while it also announced to buy huge amounts of government bonds and risky assets to pump money into the economy.

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