The Bank of Japan began a two-day policy meeting Monday amid market expectations that it will strengthen its commitment to keeping interest rates ultralow to prevent a surge in the yen following a potential rate cut in the United States later this week.
But some officials at the central bank are concerned that a mere tweaking of its post-meeting statement may only add to the widespread view that the BOJ is running out of policy tools to provide additional monetary stimulus to the economy, which has been suffering from the uncertain global outlook.
Aiming to achieve its 2 percent inflation goal, the BOJ has already lowered the short-term interest rate to minus 0.1 percent and guided long-term rates around zero percent following six years of aggressive monetary easing under Gov. Haruhiko Kuroda.
In April, it pledged to keep interest rates “extremely low” at least until spring 2020 while expecting inflation to remain under the target over the coming years.
During the meeting through Tuesday, the BOJ Policy Board could make a minor adjustment to the forward guidance by committing to keeping rates ultralow for a longer period of time, such as through 2020, according to sources familiar with the bank’s thinking.
But some BOJ watchers doubt the effectiveness of such an announcement.
“Adjusting the guidance is an important option. But it means the BOJ is doing nothing (to underpin the economy),” said Takeshi Minami, chief economist at the Norinchukin Research Institute.
The BOJ is under pressure to further ease monetary policy as its peers in the United States and Europe have increasingly signaled they would cut interest rates to safeguard growth.
While the European Central Bank said last week it will look into a range of stimulus options including rate cuts, the U.S. Federal Reserve is widely seen as ready to lower rates at the end of its two-day policy review on Wednesday.
If the BOJ stands pat the previous day, a possible rate cut by the Fed could trigger a yen spike against the U.S. dollar on narrower interest rate gaps between the two economies, which would hurt Japanese exporters.
Kuroda delivered a speech last week in Washington indicating the BOJ will consider additional monetary easing steps if rising uncertainties in the world economy affect Japan’s economy and prices.
He will meet the media Tuesday to explain the BOJ’s decision at the meeting.