Kuroda says BOJ could ease policy more, still has tools available

BANK OF JAPAN / BOJ - WASHINGTON. Bank of Japan Governor Haruhiko Kuroda said on Friday the central bank could ease monetary policy further if needed to spur growth, shrugging off views that it has used up ammunition to fight the next economic downturn.

A senior International Monetary Fund official also said deepening negative interest rates remained an option if the BOJ were to ease, though adding that any such move should be accompanied by fiscal and structural steps to be effective.

"We think that lowering the negative interest rate remains an option. Of course, given stubbornly anchored inflation expectations, a whole package (of steps) is needed, especially structural reforms," Odd Per Brekk, who is the IMF's mission chief of Japan, told Reuters on Friday.

The remarks came amid simmering market speculation that the BOJ could ease policy as early as this month such as by deepening negative rates - a controversial move given the strain years of ultra-low rates is inflicting on commercial bank's profits.

The IMF cut its global growth forecasts this week as manufacturers felt the pinch from the U.S.-China trade war, adding pressure on the BOJ to ramp up stimulus to prevent external headwinds from derailing a fragile recovery.

IMF warns of over-reliance on central banks

Coming out from a two-day meeting of G20 finance ministers and central bank heads, Kuroda said some countries did mention that prolonged periods of loose monetary policy have left them with less room to ramp up stimulus.

But the case for Japan was different, he said, stressing the BOJ's readiness to top up monetary support if heightening global risks threaten achievement of its 2% inflation target.

"It's not as if we have limited monetary policy space. If needed, we could take additional easing steps," Kuroda told a news conference hosted by Japan as chair of this year's G20 meeting.

"We will carefully analyze economic and price developments in deciding whether such measures are necessary," he said.

While warning of heightening risks to global growth, the IMF has urged policymakers to avoid relying too heavily on already-stretched monetary policy tools in spurring growth.

"There were some views expressed at the G20 meeting that in general, prolonged periods of monetary easing have diminished space for additional easing," Kuroda said.

"But it's hard to generalise that monetary policy space has diminished, because much depends on the economic and price developments of each country," he said.

Kuroda also said there were no signs yet that the BOJ's ultra-loose monetary policy was impairing Japan's banking system by discouraging financial institutions to boost lending.

The BOJ said last month it will more thoroughly assess economic and price developments at the Oct. 30-31 rate review due to heightening global risks, signaling the chance of easing policy as early as this month.