BoJ Chief Rules Out Rate Cut

Bank of Japan Governor Haruhiko Kuroda has said the central bank “will not hesitate” on monetary easing if necessary, but noted that the Japanese economy’s moderate recovery means such action is not currently warranted.

Referring to the bank’s forecast that the economy will grow about 1% in fiscal 2016 and accelerate to 1.5% in fiscal 2017, largely due to hefty fiscal stimulus, Kuroda ruled out further easing for the time being, Kyodo reported.

 “At this stage we don’t think it’s necessary to further reduce” the negative 0.1% rate on some reserves that commercial banks park at the BoJ, he said.

“But if it becomes necessary, we will not hesitate to reduce interest rates or expand the asset purchase program,” he said in a question-and-answer session after delivering a speech at the Brookings Institution think tank in Washington.

Asked whether the BoJ can lower the minus 0.1% rate to the level of the European Central Bank’s minus 0.4% deposit rate, Kuroda said that while it would be “technically possible”, he thinks the minus 0.1% is “appropriate” for now.

If the rate falls deeper into negative territory, it “could have a negative impact on the profitability of the financial system” or banking profits, although it “could have a stronger, positive impact on the real economy,” he said.

Kuroda spoke of the BoJ’s shift in monetary policy to target interest rates instead of controlling the amount of assets it buys to flood the economy with cash as Japan seeks to tame deflation and nurture growth.

Last month, the BoJ introduced the so-called yield curve control policy by guiding the yield on 10-year government bonds to around 0% while maintaining the minus 0.1% rate applied to some commercial bank deposits.

The central bank also announced it will keep expanding the monetary base until growth in the consumer price index excluding fresh food, a key gauge of inflation, “overshoots” its 2% target.