The Bank of Japan maintained its ultraeasy monetary policy Tuesday and said it would “not hesitate” to take further measures if needed as lingering economic uncertainties cloud the global outlook.
The move comes with central banks around the world expected to return to rate cuts in the face of nagging concerns, including the effects of U.S. President Donald Trump’s trade policies.
The BOJ downgraded its inflation outlook slightly to 1.0 percent for the year to next March and 1.3 percent for the following year, compared with previous forecasts for 1.1 percent and 1.4 percent, respectively.
The figures again fell far short of the 2 percent inflation that the BOJ has long set as its target — a figure seen as key to turbocharge the economy — despite a barrage of stimulus and monetary easing packages.
The BOJ said it will continue to monitor “downside risks to economic activity and prices, mainly regarding developments in overseas economies” after its two-day Policy Board meeting finished Tuesday.
The bank has argued that prolonged periods of low growth and low inflation have created a “deflation mindset” that continues to weigh on the economy.
But the BOJ says that the economy has been on “a moderate expanding trend.”
“We are clearly indicating that we shall not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost,” BOJ Gov. Haruhiko Kuroda told a news conference.
Investors expect the U.S. Federal Reserve to cut its policy rate by 25 points after its policy meeting Wednesday.
Last week, the European Central Bank suggested that it could offer a new stimulus package and cut rates further in a bid to drive up inflation and to kick-start the regional economy.
Kuroda, while avoiding comment on the possible impact of the expected Fed rate cut, said the moves by his U.S. and European peers showed “the significance of the uncertainty that surrounds the global economy.”
The prolonged trade war between the U.S. and China has particularly concerned policymakers and economists, with the rise of Boris Johnson as the British prime minister also raising fears about the prospect of a no-deal Brexit.
Kuroda added that he believes the government has taken adequate steps to offset the negative impacts of the planned consumption tax hike from 8 percent to 10 percent in October.
Amid growing expectations that it will need to increase stimulus, the BOJ’s decision likely reflects policymakers’ hopes that markets may already have reacted to expectations of additional stimulus by the Fed and European Central Bank, meaning the yen won’t strengthen much more. A stronger yen would hurt the BOJ’s efforts to stoke inflation.
“It’s not entirely clear how close the BOJ is to taking actual action,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute and a former BOJ official. “I don’t expect further easing in the immediate future. But the key is the yen. If the yen looks certain to test 100 (to the dollar), that would be a likely trigger for the BOJ to take action.”
The yen touched its strongest level of the day against the dollar after the BOJ decision. It was trading at 108.65 as of 1:02 p.m. in Tokyo.
The market stability that followed the ECB’s policy meeting likely gave BOJ policymakers added confidence that they could stand by. The yen weakened after the ECB signaled further stimulus, which indicated investors are taking rate cuts by the ECB and Fed as good signs for the global economy, rather than focusing on interest rate differentials with Japan.