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ECONOMY > Economic Policy

BOJ to keep rates very low through spring 2020 to boost economy

  • April 25, 2019
  • , Kyodo News , 8:40 p.m.
  • English Press

The Bank of Japan said Thursday inflation will remain under its 2 percent target over the coming years, pledging to keep interest rates “extremely low” at least until the spring of 2020 in a bid to underpin the economy amid growing uncertainty over global growth.


The central bank will commit to the ultralow-rate policy “for a fairly long period of time,” BOJ Governor Haruhiko Kuroda told reporters after a two-day policy meeting. He also denied the new forward guidance suggests the bank would immediately consider raising borrowing costs in the spring of next year.


At the meeting, the BOJ’s Policy Board voted 7-2 to maintain a short-term interest rate of minus 0.1 percent and keep long-term rates around zero percent, while leaving unchanged its massive asset purchase program.


The BOJ changed its forward guidance to more clearly demonstrate to market participants how long interest rates will remain low.


The bank “intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, at least through around spring 2020,” it said in a statement, citing uncertainties with overseas economies and the effects of Japan’s consumption tax hike scheduled for October.


Last month, it only said it would keep rates very low “for an extended period of time.”


Kuroda said Thursday the BOJ clarified the timeline because it had been worried that some market players appeared to take the wording as suggesting a shorter span of time than the BOJ intended to imply.


“I mean we will keep rates at very low levels for a long period of time while closely monitoring uncertainties over the global economy,” said Kuroda. “We made clear that it is a fairly long period of time.”


“We are not considering at all that we will review interest rates in the spring of 2020,” he also said, apparently trying to quell market speculation that the BOJ could shift toward an exit strategy to end its ultraloose monetary policy, as done by its peers in the United States and Europe.


Takahide Kiuchi, executive economist at the Nomura Research Institute, said the new guidance is unlikely to affect markets significantly as investors have already priced in the view that the BOJ will not lift interest rates until the spring of 2020.


“There will be no exit if the BOJ sticks to hitting the 2 percent inflation target,” Kiuchi, a former member of the BOJ board, said. The bank “must shift away from the price (targeting) and normalize monetary policy at some point.”


In its quarterly growth and price outlook, the BOJ expects core consumer prices, excluding fresh food, to grow 1.6 percent in fiscal 2021 from a year earlier, its first forecast for the year through March 2022.


It also cut its inflation forecast for fiscal 2020 to 1.4 percent from 1.5 percent projected in January, while retaining its price growth forecast for fiscal 2019 at 1.1 percent.


Amid slow wage growth, price gains in Japan remain tepid with core consumer prices only rising 0.8 percent in March.


The BOJ maintained its view that prices will gradually increase toward its 2 percent target which the central bank has been pursuing since 2013. But it also said it is likely to “still take time to achieve the price stability target.”


Kuroda admitted inflation is unlikely to hit the 2 percent goal through fiscal 2021.


“It is regrettable that we have yet to reach the goal even six years after introducing it,” he said.


In the outlook, the BOJ also said Japan’s economy will expand 1.2 percent in fiscal 2021 from a year earlier.


The world’s third-largest economy is also expected to grow 0.8 percent in fiscal 2019 and 0.9 percent in fiscal 2020, downgraded from a rise of 0.9 percent and 1.0 percent, respectively, reflecting weaker exports and production following an economic slowdown in China.


“Japan’s economy is likely to continue on a moderate expanding trend, despite being affected by the slowdown in overseas economies for the time being,” the BOJ said, expressing a more cautious view in its headline assessment.


The BOJ also said it will consider introducing a facility for the central bank to temporarily lend exchange-traded funds, a type of risky asset it purchases, to financial institutions, in an apparent move to ease concerns about liquidity in the ETF market.


As the BOJ’s share in the market has been increasing significantly, it is facing criticism that its massive purchases are distorting stock prices and soaking up liquidity in the market.

“It will take some time to launch a new framework as we have to hear opinions from market players and receive permission by the Finance Ministry,” Kuroda said.

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