Bank of Japan Governor Haruhiko Kuroda said on Friday he saw no need to expand monetary stimulus now, underscoring the central bank’s preference to save its dwindling ammunition in case the economy takes a bigger hit from heightening overseas risks.
Kuroda said the BOJ had “ample room” to ease further and will not hesitate to do so if slowing global growth and the Sino-U.S. trade war threaten to derail the economy’s path toward achieving its 2 per cent inflation target.
But he said the current stimulus program was sufficient to gradually push up wages and inflation.
“I’m not considering taking any further easing steps at the moment,” Kuroda told parliament.
“If there’s a risk of a severe global slowdown, or if various other factors could threaten the economy’s momentum to hit our target, we need to think of additional steps,” he said.
“Even so, we would be taking into account the side-effects of any action in deciding on the appropriate policy response.”
The remarks echo those by BOJ board member Makoto Sakurai, who said on Wednesday the central bank can hold off expanding stimulus for now as robust domestic demand offsets the hit to exports from overseas risks.
WARNS AGAINST FISCAL COMPLACENCY
Kuroda also said the central bank’s ultra-loose monetary policy is aimed at hitting its inflation target, rather than funding government spending, warning against complacency in getting Japan’s fiscal house in order.
Ruling party lawmakers have been piling pressure on the government to compile a big spending package, which would add to a debt-pile that is already the biggest among advanced economies.
Kuroda repeated his view that the effect of fiscal spending in stimulating the economy can be heightened if complemented by ultra-loose monetary policy.
But that did not mean the BOJ will keep printing money to bank-roll public debt, he added.
“Our monetary easing efforts are aimed at achieving our price target, not at helping fund government spending. There needs to be a clear line drawn on this point,” Kuroda said.
Under a policy dubbed yield curve control, the BOJ pledges to cap long-term borrowing costs around zero in an effort to reflate growth and achieve its elusive 2 per cent inflation target.
The BOJ kept policy steady last month but gave the strongest signal to date that it may cut interest rates in the near future if needed.
Many analysts, however, believe the threshold for more rate cuts is high due to the growing side-effects of prolonged easing, such as the strain that years of ultra-low interest rates are inflicting on financial institutions.
Critics also say that years of ultra-low rates have allowed the government to keep spending and drag its feet on reforms needed to fix Japan’s tattered finances.