WASHINGTON (Reuters) – Bank of Japan Governor Haruhiko Kuroda said Sunday that a mix of monetary easing, flexible budget spending and structural reforms to boost the country's long-term growth potential could stimulate the economy.
Bank of Japan (BOJ) Governor Haruhiko Kuroda speaks during an interview with Reuters in Washington on October 19, 2019. REUTERS / Carlos Jasso To oppose the view that they have little ammunition in years of low growth and low inflation remained to fight an economic downturn.
However, he said that fiscal spending and structural reforms to stimulate potential economic growth will help to enhance the effect of monetary easing.
"We have unconventional toolkits so monetary policy effectiveness should not be overly pessimistic," Kuroda said at a seminar on long-term policy challenges for central banks.
"In response to significant downward pressure on growth, a policy mix of monetary easing, flexible fiscal policy and steps to increase the natural interest rate could be effective."
The remarks came after the impact of Der The bitter US-China trade war forced the International Monetary Fund to reduce its forecast for global growth and put pressure on central banks to step up their efforts to counter rising global risks.
The BOJ has signaled an easing opportunity earlier this month as weak global demand weighed on the export-dependent Japanese economy.
Kuroda said that while the BOJ will maintain its massive stimulus package to meet its 2% inflation target, measures must also be taken to reduce the cost of prolonged easing.
"The stability of the financial system should be tackled primarily through macroprudential steps. But no regulatory tool kit is perfect, "Kuroda said.
"Monetary policy affects broad areas of financial activity. The BOJ should assess financial functioning and take appropriate policies to reduce the cost of monetary easing. "
Kuroda also said that the BOJ saw the need to" pay attention to the shape of the yield curve ", as excessive declines are seen in excessively long bond yields, the curve is flattened and the returns of the pension funds and insurance companies, with their investments earn, sink.
Japan has not experienced a situation in which extremely low interest rates are affecting the profits of financial institutions so much that they are being deterred from lending.
However, such negative effects of prolonged easing are cumulative and should therefore be carefully monitored, he added.
"It's not a serious problem right now, but it could be a serious problem in five or ten years," he added, adding that the BOJ will likely be accompanied by any additional steps to ease monetary policy with mitigating side effects. 19659003] Subdued inflation has forced the BOJ to maintain extremely low interest rates for years, hampering the profits of financial institutions and letting them have fewer instruments to fight the next recession.
As part of what is known as YCC (Yield Curve Control) Politics commits the BOJ to set short-term interest rates at -0.1% and yields on 10-year government bonds at around 0%.
Reporting by Leika Kihara; Editing by Lisa Shumaker