Bank of Japan Gov. Haruhiko Kuroda on Monday dismissed views that the central bank has already exhausted its policy options, saying there is “ample room” for additional monetary easing to achieve the BOJ’s 2 percent inflation target.
Kuroda signaled that the bank believes taking interest rates further into negative territory is one option, although he warned that depending too much on such a policy could fan fears about the future of the financial sector and dampen public confidence.
“It is often argued that there is a limit to monetary easing, but I do not share such a view,” Kuroda said in a speech in Tokyo, adding, “Needless to say, there is still ample room for further cuts in the negative interest rate and for an increase in the quantity dimension.”
Kuroda’s remarks come as financial market participants are closely awaiting the BOJ’s next move.
The central bank has pledged to conduct a “comprehensive assessment” of the radical policies it has undertaken for more than three years at its two-day Policy Board meeting on Sept. 20.
The governor said that the central bank plans to analyze what has prevented it from achieving the 2 percent inflation target and what kind of measures it should carry out to do so.
“Let me emphasize that the assessment will be conducted with the aim of achieving the 2 percent target at the earliest possible time. A reduction in the level of monetary policy accommodation, which is being called for by some market participants, will not be considered,” Kuroda said.
Kuroda suggested that it has begun paying attention to the negative economic impact of its aggressive monetary easing, saying any additional action entails “costs.”
But he has apparently leaned toward further easing, with no prospect of 2 percent inflation in sight amid lower global oil prices and slowing domestic demand.
While expectations are growing that the U.S. Federal Reserve will hike interest rates sometime soon, the BOJ is likely to have no choice but to continue loosening its monetary grip as prices show little sign of climbing.
“There may be a situation where drastic measures are warranted even though they could entail costs depending on the situation of economic activity, prices, and financial conditions. The central bank should always prepare policy options to address such situations,” Kuroda said.
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