Kuroda: ‘More positive’ towards easing as global peers shift

Bloomberg

The Bank of Japan said it’s “more positive” about adding monetary stimulus as it eyes a global shift in which the Federal Reserve is set to cut interest rates on Wednesday for the first time since 2008.
While Governor Haruhiko Kuroda kept policy unchanged despite trimming inflation forecasts, he added a phrase to the policy statement saying the BOJ wouldn’t hesitate to do more if needed. In a later news conference, he said the statement had gone much further in signaling a willingness to act if momentum towards 2 percent inflation is at greater risk of being lost.
“The meaning behind that is that risks are on the rise, especially surrounding overseas economies,” Kuroda said. “Under that situation, that may spread to Japan’s economy and prices.”
The global pivot to yet more monetary stimulus threatens to strengthen the yen, which would dampen import prices and hamper Kuroda’s already tough mission to restore inflation. Yet with little ammunition left, he and his board stood pat, betting that markets may already have reacted to expectations of additional stimulus by the Fed and European Central Bank (ECB), meaning the yen wouldn’t strengthen much more.
“The BOJ did their best to play it up, but this basically shows how few cards they have left to play,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. “Those in the market — including myself — were probably for the most part giving it a cold stare.”
Kuroda said the BOJ’s more positive stance doesn’t mean it will necessarily act soon, though he reiterated his longstanding position that the central bank still has plenty of stimulus options left.
Kuroda stressed the need to pay close attention to developments overseas, including Fed and ECB policy, as well as rising protectionism.
Prolonged overseas weakness may pose a risk to Japanese demand and prices, he said.
“Downside risks are big for the economy and prices, particularly because of overseas economic conditions,” he said.
In its quarterly outlook report, the BOJ said risks to inflation and economic activity were both skewed to the downside, with the latter due particularly to developments in overseas economies, including protectionism.
In updated forecasts, the BOJ effectively said 2 percent inflation remains out of sight, with core inflation projected at 1.6 percent in the year ending in March 2022. It trimmed its inflation projection for this fiscal year to 1.0 percent, while saying inflation is currently rising at around 0.5 percent year over year.
The BOJ maintained the settings on its yield curve-control programme and asset purchases, as widely expected. It also left unchanged its pledge to keep interest rates extremely low through at least spring 2020. The rates pledge had been a focus of BOJ watchers ahead of the meeting. About a third of economists surveyed by Bloomberg had expected the BOJ to bolster it.