Bank of Japan Gov. Haruhiko Kuroda on Wednesday called a negative interest rate a "powerful weapon" for monetary easing, saying the bank will cut it again if needed to conquer deflation.
“The objective of monetary easing is to push down the entire yield curve,” as lower interest rates would help companies and households, Kuroda said in a speech in Tokyo.
The BOJ surprised the market on Friday by announcing a rate of minus 0.1 percent on cash above a threshold that financial institutions hold at the central bank.
“If judged necessary, it is possible to cut the interest rate further from the current level of minus 0.1 percent,” the BOJ chief said, noting that the European Central Bank has set its deposit rate at minus 0.3 percent and some other central banks in Europe have adopted higher negative rates.
Kuroda said the new measure was aimed at addressing downside risks stemming from a slowdown in China and emerging markets that could hurt business confidence and affect the inflation trend, which has been improving.
“There is a risk that firms’ fixed investment stance and price- and wage-setting stance will become cautious,” Kuroda said. “If such risk materializes, the virtuous cycle of economic recovery from income to spending would be impaired and the underlying trend in inflation would also be affected.”
source by japantimes