MATSUYAMA: The Bank of Japan (BOJ) would up stimulus if the economy’s recovery was derailed, Deputy Governor Masazumi Wakatabe said on Wednesday, warning the coronavirus outbreak could hurt corporate sentiment and global trade.
Wakatabe said Japan’s economy was likely to have emerged from a sharp, temporary slowdown last year, helped by robust domestic demand and easing Sino-US trade tensions, signalling no monetary easing was on the horizon.
But he said risks remain high, including growing uncertainty on how the spread of the coronavirus could affect the global economy.
“China’s presence has become very large,” which means the BOJ must pay “maximum attention” to how the virus could affect Japan, Wakatabe said.
“The BOJ won’t hesitate to take additional easing steps if risks become very large and increase the chance that the momentum toward achieving its 2 percent price target will be lost.”
He said the BOJ would rule nothing out if it were to ease, even more negative interest rates.
“The reason why we maintain negative interest rates is that their benefit exceeds the cost. I don’t think negative rates are hurting consumer sentiment,” he said.
Under a policy dubbed yield curve control, the BOJ guides short-term interest rates at -0.1 percent and the 10-year government bond yield around 0 percent.
Japan’s economy, the world’s third largest, likely suffered a contraction in the final quarter of last year.
The BOJ expects the economy to recover this year and help fire up inflation toward its 2 percent target, clinging to hope that global growth will rebound around mid-year and underpin exports.
But the widening fallout from the coronavirus has cast doubt on the central bank’s rosy projection, putting it under pressure to maintain or even expand its massive stimulus.