Kuroda Lays Ground for Further Stimulus After Holding Fire Today

Bank of Japan Refrains From Adding Stimulus
  • BOJ keeps its new benchmark rate at minus 0.1 percent
  • Board voted 7-2 on negative rate, 8-1 on monetary base

The Bank of Japan has left itself room to maneuver in coming months, indicating that more asset purchases and adjustments to its negative rate remain on the table after holding fire on further stimulus Tuesday.

With inflation far from the BOJ’s 2 percent inflation goal and growth stalling, most analysts forecast another expansion by the middle of this year. Governor Haruhiko Kuroda said he doesn’t have to wait to see the full impact of the negative rate before his next move.

Haruhiko Kuroda on March 15.
Haruhiko Kuroda on March 15.
Photographer: Kiyoshi Ota/Bloomberg

The stakes are rising for Kuroda, with household and corporate sentiment waning and investors questioning whether central bankers are reaching the limits with monetary policy. The language in the BOJ’s statement indicated a downgrade in its assessment of the economy, adding to expectations for a move between April and July.

“The BOJ is laying the groundwork for a full dose of monetary easing,” said Atsushi Takeda, an economist at Itochu Corp. “The BOJ probably wanted to de-emphasize the negative rate policy for now because of its poor reception among households and lawmakers, but I think the central bank knows it has to go deeper and head off talk it’s reaching the limit.”

A further cut to the negative-rate is the most likely tool the BOJ will use, according to the Bloomberg survey.

Japan’s central bankers haven’t been alone in seeing financial markets move against them; along with the yen’s gain, stocks tumbled in February, following the Jan. 29 move.

The European Central Bank on March 10 unveiled a more aggressive dose of monetary stimulus than many analysts had anticipated, yet it still disappointed many investors. The U.S. Federal Reserve will conclude its policy meeting Wednesday.

The BOJ exempted money reserve funds from the negative rate as it irons out kinks in its new policy and seeks to placate some institutional investors who are unhappy with the measure. Even so, Kuroda said he hasn’t changed his thinking on the negative rate since its announcement in January.

Since the BOJ’s Jan. 29 meeting, economic data have shown little momentum for a recovery from a contraction registered in the final quarter of 2015. The BOJ’s key consumer-price measure didn’t budge in January, and sentiment among consumers and merchants has slumped.

The hope is that by bringing down borrowing costs, the strategy will spur companies to borrow and consumers to spend. "It is an absolute benefit that is going to transmit into increased purchasing power," Jesper Koll, the Japan head of WisdomTree Investments Inc. in Tokyo, told Bloomberg TV.

The yen advanced to 113.06 per dollar as of 7:13 p.m. in Tokyo, about 6 percent stronger than it was at the start of the year -- an appreciation that has undercut the competitive advantage that previous BOJ easing had won. The currency’s gains are a risk to growth in corporate profits, especially among Japan’s exporters, and to inflation because of lower import costs.

The central bank said it "will examine risks to economic activity and prices, and take additional easing measures in terms of three dimensions -- quantity, quality, and the interest rate -- if it is judged necessary for achieving the price stability target."

Takahide Kiuchi was the sole dissenter on the decision to keep expanding the monetary base at an annual pace of 80 trillion yen. After a 5-4 split in January over the adoption of the negative rate, the board voted 7-2 to continue with the measure, with Kiuchi and Takehiro Sato against the policy.

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