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Bank of Japan board member Yutaka Harada said monetary easing should be strengthened further without delay.
"If the economy deteriorates to the extent that achieving the 2 percent price stability target in the long term becomes difficult, I view it as necessary to strengthen monetary easing without delay," he told business leaders in Nagasaki.
The banker observed that domestic demand such as business fixed investment and consumption has withstood the decline in external demand and production. However, downside risks to the economy are increasing, said Harada.
He cautioned about the impact of the consumption tax hike scheduled for October this year.
Further, the banker said there is a risk that the current sluggishness in observed prices will spill over to inflation expectations, further delaying inflation. According Harada, the provision for free education and reduction in mobile phone-related prices are similar to tax cuts.
These measures will take time to lift real income of people and then to induce higher actual demand. But this will not hamper the achievement of the 2 percent price stability target itself measures, he noted.
It is argued that low interest rates undermine the profitability of private banks. However, he said, "deterioration in banks' profitability actually is caused by the structural problem that they are accumulating deposits despite there being no borrowers."
