BOJ’s Kuroda: Chance of more rate cuts small for now, growth picking up

BOJ Governor Kuroda attends a news conference at the BOJ headquarters in Tokyo

By Leika Kihara

TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Wednesday 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 percent 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 percent 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 U.S. Federal Reserve.

“There’s still some distance to our 2 percent 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, signaling a possible turning point in expectations for its easing cycle.

The BOJ revamped its policy framework in September last year to one better suited for a long-term battle with deflation, after three years of aggressive asset purchases failed to accelerate inflation to 2 percent.

Under the current framework, the central bank pledges to guide short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

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 percent 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,” he said.

(Editing by Shri Navaratnam)