Monetary Policy: BOJ Open for Further Stimulus

MONETARY POLICY – The Japanese central bank still has enough firepower for further monetary stimulus if needed, according to Bank of Japan Governor Haruhiko Kuroda.

The BOJ is going for further easing if the momentum heading to its 2% inflation target diminishes, said Kuroda during an interview in Fukuoka Japan.

Central bankers and finance chiefs from the G20 member countries met over the weekend in Fukuoka.

On the other hand, Kuroda stressed that the central bank doesn’t have to implement such moves right now given the current robustness of the economy.

This comes amid the uncertainties over the BOJ’s super-aggressive stimulus program, which they doubt is sustainable. The said program has caused some harm in the markets as well as to commercial banks.

Economic figures like the GDP appear to support Kuroda’s statement, although inflation is still nowhere near the bank’s target.

Kuroda also mentioned four monetary policy options the bank could take. For one, the BOJ could cut the -0.1% rate further, or it could lower the target for 10-year yields. This could raise their monetary base or prop up asset purchases.

“If the momentum to our 2% inflation target is lost,” reported Kuroda, “then, the Bank of Japan will swiftly respond by changing our policy.”

Financial Markets and Risks

In the currencies market, the Japanese yen faltered right after the market received the governor’s statements, dropping to as low as 108.67 per dollar.

The yen could get stronger if the Federal Reserve, its US counterpart, decides to actually cut their own rates this year.

That means the BOJ’s next move will more likely be an easing since a slumping yen could give a push to Japan’s efforts to prop up inflation.

On a broader perspective, analysts have previously expected the BOJ to push for some additional easing. That’s because of the unfavorable economic outlook, worsened by the incoming sales-tax hike for October.

Increases in the said tax have previously dampened consumption thereby shrinking the economy. Meanwhile, the market expects the Japanese central bank to retain its current monetary policy at the end of its next policy meeting scheduled on June 20.

“It’s time for the BOJ to examine the data,” said a chief economist at Norinchukin Research Institute. “The BOJ wants to be careful in adding stimulus because they don’t have many tools left and side effects are piling up.”

In equities, Nikkei finished the session 1% higher, with the gains in the Finance & Investment sectors leading the pack.

Toray Industries, Inc., Shiseido Co Ltd, and Yaskawa Electric Corp were among the best performers of the session.