BOJ keeps policy on hold, warns of rising global risks

TOKYO • The Bank of Japan (BOJ) kept monetary policy steady yesterday, preferring to save its dwindling ammunition as a darkening global growth outlook prompts other major central banks to drop hints of additional stimulus.

The BOJ stressed anew that global risks were increasing as trade tensions and uncertainty over US economic policies jolt financial markets, signalling that it, too, is leaning more towards ramping up - not whittling down - monetary support.

As widely expected, the BOJ maintained its short-term rate target at -0.1 per cent and a pledge to guide 10-year government bond yields around zero per cent.

It also kept intact a loose pledge to keep buying government bonds so the balance of its holdings increase by roughly 80 trillion yen (S$1 trillion) per year.

"Downside risks regarding overseas economies are big, so we must carefully watch how they affect Japan's corporate and household sentiment," the BOJ said in a statement announcing the policy decision.

Central banks across the globe are tilting towards easing as the escalating US-China trade war adds pressure on the slowing world economy.

Yesterday, central banks in Indonesia and the Philippines similarly held their key interest rates but left the door open for further policy easing.

In addition, Indonesia cut the reserve requirement for banks and said it was now a "matter of timing and magnitude" before it made its first cut in rates since September of 2017.

The Philippine central bank left the rate on its overnight reverse repurchase facility at 4.5 per cent, opting to adopt a wait-and-see stance following an upside surprise in inflation last month.

"There is room for easing monetary policy because the view on inflation is quite optimistic", said Bangko Sentral ng Pilipinas' deputy governor Diwa Guinigundo.

Bank Indonesia left its seven-day reverse repurchase rate at 6 per cent, in line with the expectations of 19 out of 22 analysts surveyed by Reuters.

The US Federal Reserve kept interest rates steady on Wednesday but signalled it was ready to battle risks by cutting rates as early as next month.

The more dovish outlook saw the yen strengthen against the weakened dollar.

Australia's top central banker yesterday said it was not "unrealistic" to expect a further reduction in rates, given ample slack in the labour market.

It cut rates to a record low earlier this month.

Many Japanese policymakers, however, are wary of expanding stimulus any time soon, as years of heavy money printing have left them with little ammunition.

Some analysts say the BOJ could strengthen its forward guidance and pledge to keep current ultra-low rates longer than it promises to do so now, if future Fed rate cuts trigger an unwelcome yen spike that hurts Japan's exports.

"There's a good chance the Fed will cut rates in July. If that happens, the BOJ will strengthen its forward guidance to keep yen rises in check," said Mr Izuru Kato, chief economist at Totan Research.

"The BOJ's next move will depend on how the US economy performs and how Washington's trade war with China progresses," he added.


A version of this article appeared in the print edition of The Straits Times on June 21, 2019, with the headline 'BOJ keeps policy on hold, warns of rising global risks'. Print Edition | Subscribe