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Kuroda Hints Cutting Rates May Now Rank Lower in BOJ Toolkit

Kuroda Hints Cutting Rates May Now Rank Lower in BOJ Toolkit

(Bloomberg) -- A change in the way Bank of Japan Governor Haruhiko Kuroda talks about the possibility of cutting the bank’s negative interest rate may suggest the option is now further down on the list of his favored tools.

Speaking earlier this week to Japanese lawmakers, Kuroda listed off the bank’s policy options—and negative rates came last. He did the same again Thursday, just hours after Federal Reserve Chairman Jerome Powell pushed back on speculation the Fed might be considering negative rates.

“There are various options including the expansion of quantitative easing and increasing methods of market operations and lowering interest rates,” Kuroda said in answer to a question after Thursday’s webcast speech on the BOJ’s pandemic response.

That phrasing, which the governor also used at a press conference after the BOJ’s April policy meeting, is a departure from the language he’d been using in the latter half of last year. The change may reflect shifting priorities.

Kuroda had been saying that policy options included cutting rates, lowering the 10-year bond yield target, and expanded asset purchases--in that order. That was consistent with the language of the 2016 statement announcing the BOJ’s current policy framework.

Most analysts see the BOJ as reluctant to cut its negative rate unless the yen strengthens excessively because doing so would further hurt Japan’s lenders, whose profitability has suffered under prolonged low rates.

“What is most important in terms of economic measures is to protect employment, businesses, and people’s livelihoods until the spread almost subsides,” he said in the speech.

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