BOJ’s Kuroda Expounds on Virtues of Negative Rates
BOJ’s Kuroda Expounds on Virtues of Negative Rates
(Bloomberg) --
Bank of Japan Governor Haruhiko Kuroda expounded the virtues of negative interest rates Tuesday in comments that will keep market players on high alert that the central bank will take action in October.
Speaking days after a BOJ meeting that raised expectations for additional stimulus to come next month, Kuroda said he was still closer to taking action than he was in July. While the governor was careful to avoid committing himself to action in October, he reiterated the findings of a 2016 policy review that short-term rates had a more powerful impact on the economy than long-term rates.
“I don’t think we need to rule out cutting negative rates as a policy option at this point,” Kuroda said to reporters in Osaka, following a speech to local business leaders there earlier in the day.
His comments will likely add to a growing impression that Japan’s central bank is feeling more comfortable about the possibility of lowering its negative rate amid a wave of rate-cutting by the Federal Reserve, the European Central Bank and other monetary authorities seeking to stem the effects of slowing global growth.
Kuroda reiterated his view that the BOJ needed to take a closer look at the risk of the global slowdown killing price momentum in Japan through a review of prices and the economy in October. The bank had no preconceived conclusions of the review or the policy decision, but it wouldn’t hesitate to take extra easing measures if it looked like inflation was losing momentum, he said.
Economists and BOJ watchers are still trying to gauge whether last week’s call for the review is more a signal of looming action or more a delaying tactic, as the bank hopes changing market and economic conditions alleviate the need to act.
One thing is for sure: a lowering of the negative rate is again a live possibility after years of looking like the most unpopular of the central bank’s policy tools.
Should the bank need to lower the negative rate, it could still stop long-term rates from sliding by adjusting its bond-buying, Kuroda said, dismissing fears that a lower short-term rate wouldn’t be effective in producing a beneficial steepening of the yield curve. It also wouldn’t be strange to see super-long rates rising if short-term rates were cut, he added.
To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Paul Jackson, Nasreen Seria
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