Room for more easing, says BOJ governor

Japan's central bank chief hints at other ideas while acknowledging rising cost of stimulus

TOKYO • Bank of Japan (BOJ) Governor Haruhiko Kuroda yesterday signalled his readiness to ease monetary policy further using existing or new tools, shrugging off growing market concerns that the bank is reaching its limits after an already massive stimulus programme.

He also stressed the BOJ's comprehensive assessment of its policies later this month would not lead to a withdrawal of easing.

But he acknowledged the BOJ's negative interest rate policy may impair financial intermediation and hurt public confidence in the banking system, a sign the central bank is becoming more mindful of the rising cost of its stimulus.

"Even within the current framework, there is ample room for further monetary easing... and other new ideas should not be off the table," Mr Kuroda told a seminar. "There may be a situation where drastic measures are warranted even though they could entail costs," he said, adding that the BOJ should "always prepare policy options". He declined to specify what other options might be considered.

The yen rose after Mr Kuroda's speech, after falling last Friday.

"Of course, it's possible for the BOJ to introduce a fourth easing measure in addition to the existing three because Mr Kuroda continues to say there's no limit to monetary policy," said Mr Takeshi Minami, chief economist at Norinchukin Research Institute, after the speech. "But when you look at market reactions, I don't think they are buying what the BOJ is saying. Markets feel Mr Kuroda is reaching limits."

Under its framework that combines negative rates with hefty buying of government bonds and some riskier assets, the BOJ has gobbled up a third of Japan's bond market, facing banks' criticism for squeezing already thin profit margins.

Sources told Reuters the BOJ will consider making some modifications to its policy framework and debate some of the unintended consequences of its ultra-loose policy.

For the first time, Mr Kuroda publicly acknowledged that negative rates could dampen public sentiment by hurting banks' profits and the rate of returns on pension investments. But he said monetary policy has yet to reach its limit, stressing that the BOJ had room to deepen negative rates.

"There is no free lunch for any policy. That said, we should not hesitate to go ahead with (additional easing) as long as it is necessary."

The BOJ eased policy in July and pledged to conduct a comprehensive assessment of the effects of its stimulus programme at this month's rate review.

Most analysts expect the BOJ to ease further this month, with economic growth having ground to a halt and inflation sliding further away from its 2 per cent target.

Facing stubbornly weak prices, the BOJ has pushed back the timing of its inflation goal several times since it implemented aggressive policy easing measures in 2013 under Mr Kuroda.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 06, 2016, with the headline 'Room for more easing, says BOJ governor'. Print Edition | Subscribe