BOJ’s Kuroda Says Monitoring Heightened Global Uncertainties

(Bloomberg) -- Bank of Japan Governor Haruhiko Kuroda said officials are keeping close tabs on mounting doubts over the outlook for global growth and pledged they would “persistently continue with powerful monetary easing” to lift inflation toward their 2% target.

“Uncertainties regarding the global economy have been heightening, and some nervousness has been seen in global financial markets,” Kuroda said Monday in a speech at the International Monetary Fund in Washington. “The Bank needs to pay close attention to the effects of these developments on Japan’s economic activity and prices.”

Kuroda and his colleagues will likely discuss the possible market impact of an expected Federal Reserve interest-rate cut when the BOJ holds a policy meeting later this month, a day before the Fed decision.

A Fed cut could cause the yen to strengthen further, putting policy makers in Japan on high alert. A stronger yen would squeeze the profits of Japan’s big exporters, weighing on corporate and investor sentiment. A stronger currency would also put downward pressure on prices through cheaper imports at a time when inflation is already moving further from the BOJ’s 2% price target.

“We will carefully examine various risk factors, in addition to developments in economic activity and prices as well as financial conditions, and weigh the benefits and costs of the policy effects,” Kuroda said.

While most economists surveyed by Bloomberg last month aren’t expecting the BOJ to take any additional action this month, a majority said the bank’s next move would be further easing. Some 60% of respondents said the BOJ would add to its stimulus measures within six months of the Fed cutting rates.

The bank is reluctant to take further action given the side effects of its policy measures, but Kuroda has repeatedly said he will take further steps if needed. At a Group of Seven meeting of finance ministers and central bankers last week in Chantilly, France, Kuroda said the bank would act swiftly if prices lost momentum.

Despite continued declines in exports amid the slowdown in global growth, Japan’s economy has shown resilience so far as business investment and consumer spending hold up. The BOJ’s baseline scenario is that the global economy will start to pick up in the second half of this year.

“Japan’s economy has improved significantly while the Bank has continued with powerful monetary easing,” Kuroda said. “The economy is no longer in deflation in the sense of a sustained decline in prices.”

Still, the risk of a further escalation of the trade battle between the U.S. and China remain high.

A planned sales tax hike in October amid weak foreign demand is another clear risk for the economy. The previous increase in 2014 caused the economy to contract as consumption slumped sharply after the increase.

Japan’s inflation slowed to 0.6% in June. BOJ forecasts released in April show it won’t meet the target at least through early 2022.

“The Bank will persistently continue with powerful monetary easing in order to maintain the momentum toward achieving 2% inflation,” Kuroda said.

To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net;Toru Fujioka in Chantilly at tfujioka1@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Alister Bull, Vince Golle

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