Japan’s central bank chief on Tuesday defended a negative interest rate policy slammed as a desperate bid to keep alive efforts at resuscitating the world’s number three economy.
Haruhiko Kuroda’s comments came after the Bank of Japan held off unleashing more stimulus following a two-day meeting, as it gauges the impact of its unprecedented move into sub-zero rates.
Tuesday’s policy announcement was the first since the BoJ caught markets off guard in January with its plan to effectively charge commercial banks for depositing some of their reserves in its vaults.
The move is aimed at giving banks an incentive to lend out money and, in turn, stoke growth in the wider economy.
But it was widely panned as a “Hail Mary” that showed the central bank was running out of tools to kickstart the economy.
Critics also said it was unlikely to boost loans, given already weak demand from both businesses and the general public.
But Kuroda on Tuesday said the policy needed time to ripple through the economy, and that it underscored the wide range of monetary policy weapons that the bank has at its disposal.
“Simply put, the negative interest rate policy will further strengthen the past monetary stimulus programme,” he told reporters.
He added that the move would help push down interest rates, resulting in lower borrowing costs for consumers, such as on home mortgages.
“We think this (effect) will spread to the wider economy and commodity prices,” he said.
Kuroda previously cited financial market turmoil and slowing growth in China as he ushered in the -0.1 percent rate for new bank reserves, and said the BoJ may go even further into negative territory.
In 2013, the central bank unveiled what is now an 80 trillion yen ($705 billion) asset-buying plan â€” similar to the Federal Reserve’s quantitative easing â€” as it works to hit an ambitious 2.0 percent inflation target.
The BoJ’s policies are a cornerstone of Prime Minister Shinzo Abe’s big-spending, easy money growth plan, dubbed “Abenomics”.
On Tuesday, the bank pointed to a “moderate recovery” in Japan’s economy for staying its hand, but it conceded that exports and industrial production have been weak because of a slowdown in emerging economies.
Economists are predicting the BOJ will be forced to act again after Japan’s economy shrank in the last quarter of 2015.
“Sluggish economic activity and the stronger yen suggest that policymakers will have to announce more easing soon, probably next month,” said Marcel Thieliant from research house Capital Economics.
Tokyo’s high-profile growth bid has largely failed to generate a sustained recovery or conquer the deflation that has weighed on the economy for years.
“You can see from the (policy) statement the agony for the BoJ in the gap between their hopes and the realities in the economy and prices,” Kyohei Morita, an economist at Barclays Plc, told Bloomberg News.
“Japanese inflation is at a leve where even the BOJ has to admit its weakness. It is leaning toward
additional stimulus and I expect it to be in July.”