• Bloomberg, Kyodo


The Bank of Japan refrained from bolstering its record monetary stimulus as policymakers gauge the impact of the negative interest rate strategy they adopted in January.

At a two-day meeting that ended Tuesday, the central bank’s Policy Board downgraded its assessment of the economy, saying that the pickup in exports has paused.

Gov. Haruhiko Kuroda and his board kept the target for increasing the monetary base unchanged, and left their benchmark rate at minus 0.1 percent, the BOJ said Tuesday. The decision was forecast by 35 of 40 economists surveyed by Bloomberg. The central bank reiterated that it will add easing if necessary.

With the BOJ far from its 2 percent inflation goal and economic growth stalling, most analysts have seen additional stimulus as just a matter of time. The stakes are rising for Kuroda, with household and corporate sentiment waning and investors questioning whether monetary policy is reaching its limits.

Regarding the negative interest rate policy launched Feb. 16, Kuroda said at a news conference that the policy will bring “a broad-based plus for people’s lives,” dismissing skepticism that its effects on the economy and prices may be limited.

But he admitted that a slowdown in emerging economies has led to weakness in exports and output. Even so, he retained the view that the economy is likely to expand moderately in the future.

“Japan’s economy has continued its moderate recovery trend,” the central bank said in a statement, compared with the more clear-cut wording in the previous policy meeting that the economy was recovering moderately.

“You can see from the statement the agony for the BOJ in the gap between their hopes and the realities in the economy and prices,” said Kyohei Morita, an economist at Barclays PLC. “Japanese inflation is at a level where even the BOJ has to admit its weakness. It is leaning toward additional stimulus and I expect it to be in July.”

Economists surveyed by Bloomberg have judged that a further cut to the negative rate policy is the most likely tool.

The yen has recently advanced to levels about 6 percent stronger than it was at the start of the year — an appreciation that has undercut the competitive advantage that previous BOJ easing had won. The currency’s gains are a risk to growth in corporate profits, especially among exporters, and to inflation because of lower import costs.

The central bank said it “will examine risks to economic activity and prices, and take additional easing measures in terms of three dimensions — quantity, quality and the interest rate — if it is judged necessary for achieving the price stability target.”

Since the BOJ’s last meeting on Jan. 29, economic data have shown little momentum for a recovery from a contraction in gross domestic product registered in the final quarter of 2015. The BOJ’s key consumer-price measure didn’t budge in January, and sentiment among consumers and merchants has slumped.

The central bank conceded in its statement that exports and production have been sluggish, while maintaining its view that there has been some improvement in employment and income conditions.

Masaki Kuwahara, an economist at Nomura Holdings Inc., said the BOJ has effectively downgraded its economic assessment.

“The downgrade may mean that the likelihood of further monetary easing increases,” Kuwahara said. “Spring wage talks are looking dull, and the price trend may weaken in the coming months.”

The decision to adopt a negative rate — a 0.1 percent charge on a portion of money that commercial banks park at the BOJ — had an impact even before it took effect in mid-February. Yields on more than 70 percent of government debt dropped below zero and bank shares tumbled on profit concerns.

Takahide Kiuchi was the sole dissenter on the decision to keep expanding the monetary base at an annual pace of ¥80 trillion. After a 5-4 split in January over the adoption of the negative rate, the board voted 7-2 to continue with the measure, with Kiuchi and Takehiro Sato against the policy.

The hope is that by bringing down borrowing costs, the strategy will spur companies to borrow and consumers to spend. “It is an absolute benefit that is going to transmit into increased purchasing power,” Jesper Koll, the Japan head of WisdomTree Investments Inc. in Tokyo, told Bloomberg TV. Japan’s central bankers haven’t been alone in seeing financial markets move against them; along with the yen’s gain, stocks tumbled in February, following the Jan. 29 move.

The European Central Bank on March 10 unveiled a more aggressive dose of monetary stimulus than many analysts had anticipated, yet it still disappointed many investors. The U.S. Federal Reserve will conclude its policy meeting Wednesday

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