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Economy

BOJ's Kuroda says he is 'more positive' on further easing

Japan's central bank stands pat ahead of expected Fed rate cut

Bank of Japan Governor Haruhiko Kuroda speaks in Tokyo on Tuesday. Earlier the bank said in a statement that it would "not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost.”    © Reuters

TOKYO -- Bank of Japan Governor Haruhiko Kuroda said on Tuesday that he is "more positive" about easing policy further to reach his 2% inflation target, as other central banks shift to a more accommodative stance.

Kuroda spoke after the BOJ decided to keep existing policy measures by a vote of 7 to 2. This includes guiding long-term interest rates to around zero and short-term rates to minus 0.1%, while increasing holdings of Japanese government debt by 80 trillion yen a year and corporate equity by 6 trillion yen.

His message came after the BOJ said in a quarterly outlook report earlier Tuesday that "the Bank will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost."

Lifting Japan out of decades-long deflation and into sustained 2% inflation is the key policy goal for Kuroda, who took office as governor in 2013.

The outlook report, adopted in a two-day policy meeting, made small cuts to the BOJ's estimates for growth and inflation for the current fiscal year in March, but the bank refrained from changing its forward guidance for policy rates. It repeated that it intends to keep short- and long-term interest rates at the current extremely low levels through spring 2020.

The BOJ stands in contrast to the U.S. and European central banks, which look to set to ease to support a slowing global economy.

Kuroda said that economic conditions remain mixed, citing growing risks in the overseas economy amid a relatively robust situation in Japan.

"The domestic economy remains on a firm footing, with solid private consumption and a robust appetite for capital investment," Kuroda said. "If the trade war drags on between the U.S. and China, however, it could delay an expected recovery in the global economy, which in turn could hurt Japan's export industry as well as the domestic sector."

The Bank of Japan is watching the impact of slower growth at home and the prospect of a rate cut in the U.S. this week. (Photo by Toshiki Sasazu)

Expectations are rising that the U.S. Federal Reserve will cut interest rates for the first time since 2008 on Wednesday, reacting to global headwinds. U.S. short-term interest rates are currently in the 2.25% to 2.5% range. The Fed is also expected to soon stop scaling back its asset portfolio.

Last week, the European Central Bank kept its monetary policy unchanged but suggested that a rate cut is coming as early as September. The eurozone policy rate is currently at zero. The market is expecting the ECB to expand its negative deposit rate for banks and to revive its quantitative easing program.

The global economic outlook remains uncertain, even though the U.S. and China are set to resume cabinet-level economic dialogue this week in an effort to resolve their trade dispute. The International Monetary Fund last week lowered its global growth forecast for 2019 by 0.1 percentage point to 3.2%, though it said it expects global growth to pick up to 3.5% in 2020.

On Monday, Japan's Cabinet Office lowered its forecast for Japanese growth to 0.9% from 1.3% for the year through March, citing weak exports. Both Japan and South Korea saw year-on-year declines in exports for the seventh straight month in June, as China's economic growth slowed to 6.2% for April-June -- the slowest pace since the release of growth data in 1992.

In the BOJ's latest outlook report, it projected Japan's economy would grow 0.7% for the year through March 2020, compared with its April forecast of 0.8%. Core consumer prices are projected to rise 0.8% versus an earlier forecast of a 0.9% increase, after discounting the effects of the upcoming consumption tax increase in October.

The BOJ kept its overall economic assessment unchanged, saying the trend is still toward expansion.

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