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BOJ keeps monetary policy unchanged, resists global easing trend

  • September 19, 2019
  • , Kyodo News , 3:02 p.m.
  • English Press

TOKYO — The Bank of Japan left its ultra-easy monetary policy unchanged Thursday, resisting pressure to join other major central banks in taking additional steps to stimulate growth amid global economic uncertainty.


At the end of a two-day meeting, the BOJ Policy Board decided to keep the short-term interest rate at minus 0.1 percent and guide long-term rates at around zero percent. It also maintained its massive asset purchase program.


The BOJ Policy Board said in a statement that “it is necessary to pay closer attention to the possibility that the momentum toward achieving the price stability target will be lost,” as “slowdowns in overseas economies have continued to be observed, and their downside risks seem to be increasing.”


The Policy Board also said it “will re-examine economic and price developments” at the next meeting in October, citing risks including “the U.S macroeconomic policies and their impact on global financial markets and the consequences of protectionist moves and their effects.”


The decision came after the U.S. Federal Reserve cut short-term interest rates by 0.25 percentage points to 1.75 to 2 percent Wednesday, following one in July, amid global fallout from the prolonged U.S.-China trade conflict.


Meanwhile, the European Central Bank last week cut rates for the first time in over three years and said it will restart purchasing government bonds.


The board voted 7 to 2 to maintain the current monetary policy, but Goshi Kataoka, one of the two nay votes, demanded a further cut in short-term interest rates, according to the statement.


The BOJ had been seen as facing pressure from the government to take its own action to prevent the yen’s surge against the dollar following the Fed’s decision.


A strong yen could weigh on Japanese exports and growth at a time when the government and the BOJ are bracing for an impact on domestic demand from the consumption tax hike scheduled for Oct. 1.


It is feared that the tax hike, to 10 percent from 8 percent, will keep inflation far below the BOJ’s 2 percent target by weakening business and household spending, although the board left unchanged its outlook that “Japan’s economy is likely to continue on a moderate expanding trend,” according to the statement.


The board reiterated that the BOJ “will not hesitate to take additional easing measures” if there is a greater possibility that the momentum toward the 2 percent target will be lost, as Governor Haruhiko Kuroda repeated at the previous press conference following the policy meeting in July.


The inaction by the BOJ could fuel market speculation that the bank is running short of policy tools to provide additional monetary stimulus, and that it wants to save ammunition in case Japan’s economy is seriously hurt by the tax hike or damaged by recent global trade conflicts.


Apparently trying to dismiss the widespread view, Kuroda said earlier this month in an interview with the Nikkei newspaper that cutting interest rates further into negative territory is among its policy options.

But the negative rate policy has already triggered criticism that it has squeezed the profitability of commercial banks. Lowering the rate further would require the BOJ to consider measures to ease the pressure on their lending margins.


Kuroda will meet the press to explain the BOJ’s decision later in the day.


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