BoJ: Chance of more rate cuts small

Inflation on track to hit 2% target

TOKYO: Bank of Japan governor Haruhiko Kuroda said yesterday that the chance the central bank will deepen negative interest rates is low for now, backing market expectations that no additional monetary easing is forthcoming in the near future.

Kuroda said Japan’s economic growth was accelerating and keeping inflation on track to hit the BoJ’s 2% target during the fiscal year ending in March 2019, in line with its latest quarterly forecasts made in November.

“The BoJ of course stands ready to ease further if needed to achieve its 2% inflation target,” the central bank chief told parliament.

“With economic growth accelerating, however, the chance of deepening negative rates is low,” he said, when asked about the pain the BoJ’s policy is inflicting on regional banks’ profits.

Kuroda also dismissed the view that the BoJ could raise its yield targets if Japanese long-term rates their global counterparts higher, driven by expectations of steady rate hikes by the US Federal Reserve.

“There’s still some distance to our 2% inflation target, so it’s necessary to maintain powerful monetary easing to achieve the target at the earliest date possible,” he said.

A Reuters poll showed economists were largely split on the BoJ’s next policy move as fewer of them now expect more monetary stimulus in Japan, signalling a possible turning point in expectations for its easing cycle.

The latest Reuters survey of economists conducted Feb 13-17 showed the outlook for growth and inflation for the world’s third-largest economy broadly in line with the January poll.

However, economists have pared back their expectations for the BoJ to ease its already ultra-accommodative monetary policy, as the outlook for global growth improves and the yen’s outlook softens.

While the analysts don’t expect any change soon, 15 of those surveyed say it will pull back from its ultra-easy monetary policy when the BoJ does decide to alter its policy, while 17 say its next move will be to ease.

That compares with 12 to 18 in the January poll and 10 to 21 in December.

“The BoJ will likely stay the course this year,’’ said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, though he expects inflation to pick up and wages to improve in 2018.

“So the BoJ could raise the 10-year government bond yield target in the middle of next year,” he said. “But that would be too early to raise negative interest rates.”

The central bank has lowered short-term interest rates to -0.1% and bought billions of yen worth of bonds and other assets in a campaign to boost inflation and growth.

In September, it adopted the unusual tactic of trying to keep the 10-year bond yield around 0%.

Some analysts expect the BoJ will likely cut the pace of its annual increase in Japanese government bond (JGB) holdings from the current 80 trillion yen sometime this year.

“The BoJ has shifted its policy targets to interests rates, so we expect the central bank will drop the target of the amount of an increase in JGB holdings eventually,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The poll showed the BoJ will maintain its interest rates at -0.1% imposed on some excess bank reserves at least until the second quarter of 2018.

The negative rate policy and the BoJ’s aggressive money printing have drawn criticism from financial institutions for narrowing their margins and drying up bond market liquidity.

While the BoJ already holds roughly 40% of the entire Japanese government bond market, Kuroda said he saw no signs market liquidity was diminishing. “I don’t think we will face difficulty buying bonds to achieve our yield curve control policy.”