Bank of Japan Deputy Gov. Masayoshi Amamiya on Friday said the central bank is ready to ramp up stimulus and will consider all policy options, including deepening negative interest rates, if the loss of economic momentum hurts its efforts to boost inflation.
Amamiya said the economy remains on track to achieve the central bank’s 2 percent inflation goal, as robust capital expenditure offsets some of the weaknesses in exports and output.
But he said the BOJ was mindful of growing risks to the outlook, particularly from overseas, and will be watchful about the resilience of domestic demand to external pressure.
“For now, our baseline scenario is that Japan’s economy will continue to expand moderately and gradually push up inflation to our target,” Amamiya told a Reuters Newsmaker event.
“But there are various downside risks. If such risks hurt the economy’s momentum to achieve our price target, we won’t hesitate to consider easing more,” he said, when asked whether the BOJ saw no need to top up stimulus for the time being.
With U.S.-China trade frictions hurting global demand and clouding Japan’s economic outlook, some analysts predict the BOJ could ease monetary policy as early as at this month’s rate review.
The BOJ has said if it does ease its policy, it has four options — deepening negative rates, cutting its 0 percent long-term bond yield target, ramping up asset buying and accelerating the pace of its money printing.
But financial institutions have criticized the BOJ’s negative rate policy, saying it is hurting their margins and threatening to destabilize the nation’s banking system.
When asked whether deepening negative rates is still among the BOJ’s policy options, Amamiya said, “When we guide monetary policy, we don’t rule out any policy means.”
The BOJ could deploy the four options individually, combine some of them, or modify them from their existing forms, Amamiya said, without elaborating.
The economy expanded by an annualized 2.1 percent in the first quarter, but many analysts predict growth will slow in the coming months as the U.S.-China tariff row hurts exports. A scheduled sales tax hike in October may also curb consumption, they warn.
Annual core consumer inflation hit 0.8 percent in May, still some way off from the BOJ’s target despite years of heavy money printing that has pushed borrowing costs to or below zero.
Amamiya said that in guiding policy, the BOJ will look through temporary factors that sway inflation and focus on the strength of the economy and companies’ price-setting behavior.
“The output gap is still positive. More companies are raising prices. If this trend continues, people’s perception of future price moves will change,” Amamiya said. “At present, the momentum (for inflation to hit 2 percent) is sustained.”
Under a policy dubbed yield curve control, the BOJ guides short-term rates at minus 0.1 percent and the 10-year bond yield at around 0 percent. It also buys huge amounts of government bonds and risky assets as part of efforts to achieve its elusive 2 percent target.