Bank of Japan (BOJ) Governor Haruhiko Kuroda said on Monday the central bank will scrutinize the effects of negative interest rates on the economy for the time being, suggesting that no immediate expansion of stimulus was forthcoming.
He also maintained his optimism on Japan’s economic outlook, countering criticism that the BOJ’s decision in January to adopt negative rates has had little positive effect on markets.
“The decline in yen interest rates and the fact that further monetary easing is possible – all else being equal – have a positive impact on asset prices,” Kuroda said at a seminar.
“At the moment, these effects are being outweighed by excessive risk aversion among investors around the globe.”
Kuroda reiterated the BOJ’s readiness to ease again, either by accelerating asset purchases or pushing rates deeper into negative territory, if needed to hit its 2 percent price target.
But he added that current negative rates would have a “very powerful” stimulus effect on the economy by driving down borrowing costs and nudging firms into boosting investment.
“Now is the time to carefully scrutinize how the effect (of the negative rate policy) will spread to the economy,” Kuroda said, when asked whether the BOJ was ready to push rates deeper into negative territory.
The “Abenomics” economic strategy of Prime Minister Shinzo Abe relies heavily on central bank stimulus to promote growth, but Abe said on Monday the BOJ had adopted negative rates of its own accord, and denied that his policy had failed – despite low growth and weak inflation.
The BOJ unexpectedly cut a benchmark interest rate below zero in January, stunning investors with another bold move to stimulate the economy as volatile markets and slowing global growth threaten its efforts to overcome deflation.
The central bank will charge a 0.1 percent interest on some of the excess reserves financial institutions park with the BOJ, while maintaining its existing asset-buying program – dubbed “quantitative and qualitative easing” (QQE).
Kuroda has been under fire from lawmakers, who have criticized him for aggravating the market turbulence rather than boosting stock prices and arresting an unwelcome rise in the yen.
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