Bank of Japan Governor Haruhiko Kuroda said on Monday the central bank will take necessary steps to stabilize markets jolted by the coronavirus outbreak, bolstering speculation about co-ordinated global policy action.
Kuroda’s comments, made in an emergency statement just days after a similar move by Federal Reserve Chair Jerome Powell, were welcomed by markets as a signal the world’s biggest central banks were mustering a co-ordinated response to the crisis.
French Finance Minister Bruno Le Maire also said on Monday that G7 major economies would take “concerted action” to limit damage from the epidemic, with the group’s finance ministers to discuss the best approach by phone this week.
Kuroda said financial markets have made “unstable movements” amid heightened uncertainty over the impact on the economy from the epidemic.
“The BOJ will monitor developments carefully, and strive to stabilize markets and offer sufficient liquidity via market operations and asset purchases,” he said.
The statement’s language suggested the BOJ would make full use of its existing tools to flood markets with funds, before pondering additional monetary easing steps.
Indeed, the BOJ subsequently offered 500 billion yen ($4.62 billion) in two-week funds via market operations. Investors also expect the central bank to ramp up daily purchases of exchange- traded funds (ETF) to put a floor on stock prices.
“Kuroda’s statement focused on market operations and asset purchases, which meant the BOJ may make its ETF buying more flexible to support stock markets or take steps to avoid money markets from tightening,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.
In his own unscheduled statement issued on Friday, Powell said the Fed would “act as appropriate” to support the economy in the face of risks posed by the epidemic.
Goldman Sachs’ economists Jan Hatzius and Daan Struyven said Powell’s statement “strongly hints” at an interest rate cut at or even before the Fed meets on March 17-18, as well as the likelihood of co-ordinated action.
“Chair Powell’s statement on Friday suggests to us that global central bankers are intensely focused on the downside risks from the virus,” Hatzius and Struyven said in a note.
“We suspect that they view the impact of a co-ordinated move on confidence as greater than the sum of the impacts of each individual move.”
JAPAN FEARS RECESSION
Kuroda’s comments reinforced that view. Asian shares steadied from early losses on Monday as investors placed hopes on a co-ordinated global policy response to weather the damaging economic impact of the coronavirus epidemic.
But some analysts warned markets against betting too much on additional BOJ easing or globally co-ordinated rate cuts, given the dwindling tools some central banks have been left with.
Former BOJ board member Takahide Kiuchi said Kuroda’s statement was not a preannouncement of an imminent easing.
“U.S., European and Japanese central banks could issue a joint emergency statement pledging to act against market turbulence,” said Kiuchi, currently an economist at Nomura Research Institute.
“That will probably happen before any joint interest rate cuts are pondered. In any case, I don’t think conditions have worsened enough yet for these things to happen.”
The BOJ next meets for a rate review on March 18-19.
As of Monday, Japan had 962 coronavirus cases, including 705 from a cruise liner quarantined off its coast, according to the public broadcaster NHK.
Japanese authorities have confirmed five more cases of coronavirus in Hokkaido, NHK said later on Monday, bringing the total there to 77, the largest number of cases in Japan as the northern island declared a state of emergency.
A post office employee in the northwestern prefecture of Niigata also tested positive for the virus, Japan Post said. The customer windows at the post office where the employee worked would be closed in the meantime, it said.
The outbreak has heightened fears of recession in Japan as supply chain disruptions, slumping overseas tourist numbers and event cancellations hurt an already fragile economy.
Japanese auto sales fell 10.3 per cent in February from a year ago, data showed on Monday. Asia’s factory activity slumped with activity in China shrinking at a record pace.
Prime Minister Shinzo Abe shocked the nation last Thursday by asking all schools to close until the new academic year starts in early April to stem the spread of the virus.
Abe also said the government would announce a second batch of measures around March 10 to prevent the spread of the virus and mitigate its damage to the economy.
Any fiscal steps will not involve big spending as Abe has repeatedly said the government will tap its 270 billion yen in budget reserves for now.
“We will carefully monitor developments and take steps without hesitation, as needed,” Abe said.
Under a policy dubbed yield curve control, the BOJ guides short-term rates at -0.1 per cent and pledges to cap long-term borrowing costs around zero. It also buys government bonds and risky assets, such as ETFs, as part of its massive stimulus program.