Article Highlights

  • BOJ keeps interest rate targets unchanged
  • Kuroda says ready to ease if growth momentum lost
  • No plan to raise yield target soon - Kuroda
  • Adds global community shares view free trade important
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Japan’s central bank chief on Friday signaled his readiness to ramp up stimulus if the economic recovery lost steam, in an emphatic pushback against creeping speculation it could tighten the money spigot as other economies dial back crisis-mode policies.

The Bank of Japan kept its monetary policy settings unchanged, as expected, but Governor Haruhiko Kuroda flagged U.S. President Donald Trump’s move to impose import tariffs on steel and aluminum as risks for both the domestic and global economies.

With fears of a global trade war and a strong yen clouding the outlook, Kuroda warned that there was uncertainty over the BOJ’s projection inflation will reach its 2 percent target during the fiscal year ending in March 2020.

“If the economy loses momentum to achieve our price target, we would of course consider easing policy further,” Kuroda told a briefing.

In a widely expected move, the BOJ maintained its pledge of guiding short-term interest rates at minus 0.1 percent and the 10-year government bond yields around zero percent.

It also kept intact its upbeat view that the economy continues to expand moderately thanks to robust exports and capital expenditure.

But Kuroda‘s warnings about trade risks and his cautious commentary on the conditions of an end to accommodative policy marked a stark contrast to his remarks last week that raised the distant but explicit prospect of a stimulus exit, which sent the yen and bond yields higher.

There was little financial market reaction to either the central bank decision or Kuroda‘s comments on Friday.

The BOJ’s monetary policy decision followed data showing workers’ wages fell at the fastest pace in six months, in a sign that consumption may lose momentum this year and weigh on an economy now enjoying its longest run of growth in 28 years.

Kuroda said the economy was on course to hit his price target, with the job market close to full employment and inflation expectations seen picking up steadily.

But he dismissed the chance of raising the BOJ’s yield target any time soon, even if inflation ticked up.

“Our policy aims to strengthen the degree of monetary easing by maintaining yields low even as inflation expectations heighten,” he said.

“We have absolutely no plan of doing so now,” Kuroda said, when asked whether the BOJ could raise the yield target before inflation hits its target.


Kuroda, who is set to serve another term, rattled markets on March 2 by flagging for the first time the possibility of a stimulus exit if 2 percent inflation were met in fiscal 2019 – a remark he later tempered.

The BOJ is caught in a bind. Inflation remains well below its 2 percent target even as the economy enjoys solid growth, keeping it from dialing back stimulus despite the rising costs of prolonged easing.

That leaves Kuroda with a tough task in his second term beginning in April, which is to navigate the long road toward a stimulus exit with subtle hints without stoking market fears of an imminent policy shift.

Even if inflation hits 2 percent during fiscal 2019 as it projects, the BOJ will only begin discussing an exit and won’t head for one immediately, Kuroda said.

“There is still some distance from our price target, so we’re not in a stage now to discuss specifics of an exit strategy,” he added.

Kuroda did not see significant prospects of a global trade war, saying policymakers were united in their resolve to protect free trade.

“G7, G20, WTO, IMF – the international community all share an understanding of the need for free trade. Protectionism has demerits to the country that imposes it, so I don’t think it will spread globally,” Kuroda said.

“But each country’s trade policy could affect global growth and financial markets, so we need to carefully watch developments.”

With consumption and wage growth subdued, Japan’s economy remains reliant on export growth that could be hurt from a strong yen and fears of rising protectionism.

“The BOJ is likely to stand pat for the foreseeable future. Given how currency markets are behaving now, it must be hard to debate an exit from easy policy any time soon,” said Izuru Kato, chief economist at Totan Research.

A majority of economists polled by Reuters expect the BOJ to keep its long-term rate target unchanged this year, though 40 percent expect a hike.

The March rate review was the final one before the BOJ leadership change, in which two new deputy governors will replace the departing officeholders on March 20.