Bank of Japan keeps policy steady
The Bank of Japan held off on expanding stimulus on Tuesday but committed to doing so “without hesitation” if a global slowdown jeopardizes the country’s economic recovery.
Growing fallout from the US-China trade war has prompted major central banks to signal more easing and put pressure on the BOJ, which has far less policy ammunition left to deal with a significant downturn.
BOJ Governor Haruhiko Kuroda said the central bank strengthened its commitment to act pre-emptively against risks to the economy, as protectionist policies and trade tensions were delaying an expected rebound in global growth.
“I don’t think Japan has lost momentum to hit the BOJ’s price goal, or that there is an imminent risk of this happening,” Kuroda told a news conference.
“But overseas risks are heightening. If this is prolonged, that could increase risks for Japan and threaten the economy’s momentum to hit our price goal. If this happens, we will ease policy without hesitation.”
As widely expected, the BOJ maintained its short-term interest rate target at -0.1 percent and a pledge to guide 10-year government bond yields around 0 percent.
It also kept intact its forward guidance, or a pledge central banks make on future monetary policy, committing to keep rates at current ultra-low levels at least through spring 2020.
But the BOJ added a line in its policy statement that it will ramp up stimulus without hesitation “if there is a greater chance the momentum for hitting its price target is lost.”
BOJ officials have recently said the central bank won’t hesitate to “consider” easing if the economy loses momentum for hitting its price target.
The new language in the statement is a stronger pledge because the central bank is committing to act immediately to forestall risks of a loss of momentum, Kuroda said.
“In a way, you can call it pre-emptive easing,” he added.
The protracted Sino-US trade war has hurt Japanese exports and business sentiment, casting doubt on the BOJ’s view that robust domestic demand will offset the pain from the global slowdown.
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