NAGOYA – Bank of Japan Gov. Haruhiko Kuroda said Tuesday additional monetary easing by the central bank will not be limited to cutting interest rates, while adding that the economy is likely to stay firm despite the recent consumption tax hike.
The BOJ last week said it would further lower borrowing costs if necessary, sending a clearer message to markets as pressure builds on it to follow its U.S. and European counterparts in extending stimulus amid signs of a global economic slowdown.
Speaking at a meeting with business leaders in Nagoya, Kuroda said the BOJ’s new forward guidance means that “there would be a downward bias in the policy rates.”
But he also said, “There is no change in our understanding that, besides lowering the policy rates, there are various possible measures for additional easing.”
“Combinations or applications of these various measures also would be an option,” he added, referring to other steps such as expanding asset purchases from financial institutions.
On Japan’s economy, the governor said the BOJ is monitoring the impact of the consumption tax hike from 8 percent to 10 percent on Oct. 1.
But he noted the impact “has remained small compared to that of the previous tax hike in 2014 as far as available data suggest,” as the government has taken various measures to smooth out downside pressure on household spending.
Under the new guidance, the BOJ is expecting short- and long-term interest rates to remain at their present or lower levels as long as there is a possibility of losing momentum toward its 2 percent inflation goal.
Market participants have increasingly expected the BOJ to reduce short-term rates from the current minus 0.1 percent in any additional easing. But many banks have grown concerned that deeper negative rates could eat into their profit margins.
The BOJ left policy unchanged at last week’s meeting, keeping the short-term rate steady and guiding long-term rates to around zero percent. It also maintained its already massive asset purchase program.
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