Kuroda Says ‘More Positive’ Toward 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 Wednesday for the first time since 2008.

While Governor Haruhiko Kuroda kept policy unchanged Tuesday 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 toward 2% 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.”

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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 Tuesday, betting that markets may already have reacted to expectations of additional stimulus by the Fed and European Central Bank, 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.

Outlook Report

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% inflation remains out of sight, with core inflation projected at 1.6% in the year ending in March 2022. It trimmed its inflation projection for this fiscal year to 1.0%, while saying inflation is currently rising at around 0.5% year over year.

The BOJ maintained the settings on its yield curve-control program 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. Yet some BOJ officials saw little to be gained from such a move, particularly since it tweaked the language only three months ago, according to people familiar with the matter.

Policy Recap

--With assistance from Cynthia Li, Shoko Oda, Russell Ward, Yoshiaki Nohara, Yuko Takeo, Sophie Jackman, Emi Urabe, Lily Nonomiya, Gearoid Reidy, Shiho Takezawa, Go Onomitsu, Kyoko Shimodoi, Hiroshi Miyazaki, Aoi Fujimoto, James Mayger and Ken McCallum.

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net;Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Henry Hoenig, Paul Jackson

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