Bank of Japan (BOJ) Deputy Governor Hiroshi Nakaso yesterday indicated the central bank is prepared to take its benchmark rate deeper into negative territory, though not immediately.
“We have designed a policy that technically allows us to cut the level further,” Nakaso told reporters in Okinawa, referring to a minus-0.1 percent interest-rate policy the central bank adopted in January.
“I cannot say anything concrete at this point” on how low the rate could go, he said.
Photo: Reuters
Nakaso, a career BOJ official tapped by Japanese Prime Minister Shinzo Abe as one of BOJ Governor Haruhiko Kuroda’s two deputies, also said that financial markets need time to digest the unprecedented negative-rate policy. It took effect on Feb. 16.
“Some more time is needed for financial markets to digest the policy and for us to measure the impact of it,” said Nakaso, who is a former director at the BOJ’s markets section.
The BOJ has faced a backlash against its Jan. 29 decision to charge commercial banks on a share of the cash they park at the central bank. The reaction has cast a cloud over the BOJ’s next policy meeting, scheduled for March 14 and 15.
Now that the central bank has added negative rates to its record monetary stimulus program, it is time for the Abe government to double down on reform efforts, Nakaso said.
“The Bank of Japan has taken monetary easing one step further,” Nakaso said. “I expect the original third arrow of Abenomics, the growth strategy, to fly higher and faster. In order to achieve sustainable economic growth, Japan’s economy inevitably should tackle the challenges to raising medium-term growth potential, on top of overcoming deflation.”
Japan’s GDP shrank an annualized 1.4 percent in the last three months of last year. There have been five quarterly contractions since Abe took office. At the same time, the BOJ is still far from its 2 percent inflation target, with consumer prices hovering around zero, mainly because of low oil costs.
The yen has strengthened the most among major currencies this year as demand for safe assets rose following uncertainty over the outlook for the global economy.
Nakaso urged caution against becoming too concerned over moves in the market.
“Although global financial markets have been volatile since the turn of the year, I believe there is no need to be too pessimistic as the fundamentals of Japan’s economy have been firm,” he said.
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