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Pandemic stirs BOJ debate of Great Depression-like downturn

TOKYO (Reuters) - Some Japanese central bankers called for even bolder steps than those announced at last month’s policy decision, a summary of bank views showed on Monday, to prevent the coronavirus triggering an economic slump as bad as the Great Depression.

FILE PHOTO : A security guard walks past in front of the Bank of Japan headquarters in Tokyo, Japan January 23, 2019. REUTERS/Issei Kato/File Photo

With the pandemic seen tipping Japan into deep recession, some Bank of Japan board members called for steps beyond what was decided at the April rate review, such as stronger co-ordination with the government and a review of existing bank policy tools.

“Policymakers must act boldly to avoid the repeat of the Great Depression,” one board member was quoted as saying, adding there was further room to expand fiscal and monetary support.

“The BOJ must re-examine the effectiveness of its current policy to prevent Japan from slipping back into deflation,” another opinion voiced by one of the nine board members showed.

At the April 27 meeting, the BOJ expanded stimulus and pledged to buy an unlimited amount of bonds to keep borrowing costs low, as the government tries to spend its way out of the growing economic pain from the pandemic.

The pandemic has forced businesses to shut down and households to stay home, reinforcing expectations Japan will suffer a deep recession and adding to challenges for the BOJ in battling economic risks with a dwindling tool-kit.

In fresh quarterly forecasts released at the April meeting, the BOJ projected inflation will fall short of its elusive 2% target for at least the next three years.

“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,” one board member was quoted as saying.

Other members voiced concern that the economic slump caused by the pandemic could add further strain to financial institutions through a spike in bad loans, the summary showed.

The BOJ releases a summary of opinions voiced at its rate review roughly 10 days after the meeting. It does not disclose the identity of the board members that voiced the opinions.

Under a policy dubbed yield curve control, the BOJ pledges to guide short-term interest rates at -0.1% and long-term rates around 0%. It also buys huge amounts of government bonds and risky assets to pump money into the economy.

Reporting by Leika Kihara; Editing by Sam Holmes; Editing by Chang-Ran Kim and Sam Holmes

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