Business World

BoJ’s Kuroda calls for vigilance to cost of unconventi­onal easing

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TOKYO — Bank of Japan Governor Haruhiko Kuroda said on Thursday central banks must carefully evaluate the impact of unconventi­onal monetary policy steps, as their benefits and side-effects could differ from those brought about by convention­al policy.

Kuroda also warned that rapidly ageing societies could make the job of central banking more difficult, as falling fund demand could keep interest rates low and prompt financial institutio­ns to boost risky investment­s.

“As a low interest rate environmen­t persists and credit demands become stagnant amid a declining population, banks might accelerate their search-for-yield activities such as expanding their exposure to overseas assets and increasing loans and investment­s to firms with higher credit risks,” he said.

“If that were the case, the entire financial system could become less stable,” Kuroda said in a seminar that Japan hosted as chair of this year’s G20 meetings.

Japan is among the world’s fastest ageing countries, stoking concerns a shrinking working-age population will hurt potential growth and force the central bank to keep interest rates lower than it wants to stimulate the economy.

Kuroda said the BoJ has invented “various unconventi­onal monetary policy measures” after pushing interest rates to zero, such as negative interest rates and purchases of risky assets.

“We now know we have the tools to stimulate the economy even when we face the zero lower bound problem,” he said.

“However, we need to carefully monitor and evaluate the effects of these unconventi­onal measures on economic developmen­ts, prices and financial conditions since the transmissi­on mechanisms, benefits, and side-effects of these measures could be different from those of convention­al monetary policy measures,” Kuroda said.

The BoJ chief rebuffed the idea of adopting a higher inflation target, which some academics have proposed as a means of providing central banks with enough buffers to counter another economic crisis.

“No central bank has moved away from a 2% inflation target, which is a global standard,” Kuroda said.

“It has been pointed out that one reason for this is the possibilit­y that, since fluctuatio­ns in the inflation rate become more pronounced as inflation becomes higher, households and firms would find it difficult to make economic decisions.”

As chair of this year’s Group of 20 major economies’ meetings, Japan hopes to promote debate on how demographi­c changes could affect growth and policy making.

 ?? REUTERS ?? BANK of Japan Governor Haruhiko Kuroda delivers a keynote speech at a G20 symposium on demographi­c change in Tokyo, Japan on Jan. 17.
REUTERS BANK of Japan Governor Haruhiko Kuroda delivers a keynote speech at a G20 symposium on demographi­c change in Tokyo, Japan on Jan. 17.

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