The Bank of Japan (BOJ) has been communicating with officials around the world over financial-market turmoil, BOJ Deputy Governor Hiroshi Nakaso said as stocks tumble and the yen surges.
“Whether we have tools — I think we have tools, but this is something we have to be closely in touch with our counterparts, overseas counterparts,” Nakaso said in response to questions following a speech in New York on Friday. “In fact we are exchanging views and information in various aspects just as we have done in the past.”
The turmoil in markets this year is spurring talk of a potential coordinated response by international officials, as G20 finance ministers and central bankers prepare to meet on Feb. 26 and Feb. 27 in Shanghai.
Photo: EPA
The EU said in a draft planning document obtained by Bloomberg News that officials must “act urgently to secure a strong and durable global economic recovery.”
“Investors are becoming excessively risk averse globally, maybe against the backdrop of global uncertainties over the outlook for the Chinese economy, exacerbated by the further slide in oil prices,” Nakaso said. “We will be watching with utmost care how the developments in the global financial markets are going to affect Japan’s economy and inflation.”
Investors are increasingly questioning the capacity of central banks to turn the tide of market sentiment through monetary policy.
The BOJ surprised markets on Jan. 29 by joining some its counterparts in Europe with a negative rate policy. The yen weakened for one day before buyers rushed to purchase the currency as a haven from the volatility in world markets.
Nakaso said the yen has been appreciating “rather rapidly.”
Japan’s currency this month has advanced almost 4 percent against the US dollar, the biggest gain among 16 major currencies tracked by this month.
Speaking about the BOJ’s policy in his speech, Nakaso said the central bank has room to expand asset purchases if needed.
Afterward, he said he does not have an answer to the question of how much more negative the BOJ can take interest rates, though they “technically” can fall further.
Asked if Japanese banks’ profits would be hurt because of negative yields on government debt they hold, Nakaso said the BOJ is ready to buy bonds at a higher price.
“If a bank can sell [Japanese government bonds] to the BOJ with a deeper negative interest rate than 10 basis points, they can still earn some earnings,” he said. “So it doesn’t really squeeze the profitability, not necessarily.”
Nakaso also said that “from what we saw in the past few years, it is very important to have a stable exchange rate” to help stimulate domestic investment.
Nakaso spoke after BOJ Governor Haruhiko Kuroda reiterated to parliament earlier on Friday that the bank would take the necessary steps to reach its price goal.
He also said that the negative rate policy has had an initial impact on the yield curve and that its impact would spread to prices and real economy.
Even after about three years of “Abenomics” and record stimulus from the central bank, consumer prices are still barely above zero and Japan’s economy still cannot escape a roller-coaster cycle of expansion and contraction.
Economists forecast that data due on tomorrow would show that GDP contracted in the three months through December last year, making for a fifth quarter of shrinking GDP since the beginning of 2013.
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