TOKYO- Bank of Japan (BOJ) Governor Haruhiko Kuroda on Monday warned of “very high uncertainty” over the economic outlook and stressed anew the central bank’s readiness to ramp up stimulus as needed to underpin a fragile recovery.
The remarks reinforce market expectations the BOJ will remain an outlier among a global wave of central banks raising interest rates to combat soaring inflation.
“Uncertainty regarding Japan’s economy is very high” given risks such as the COVID-19 pandemic’s impact, Ukraine crisis and rising commodity costs, Kuroda said, adding the BOJ was closely watching the impact currency moves may have on the economy.
“We won’t hesitate to take additional monetary easing steps as necessary” with an eye on risks, Kuroda said in a speech to a quarterly meeting of the central bank’s branch managers.
Kuroda also repeated the BOJ’s policy guidance that the bank expects short- and long-term interest rate targets to “move at current or lower levels.”
In a quarterly report issued on Monday, the BOJ raised its assessment for seven of Japan’s nine regional areas as consumption showed signs of recovery from the pandemic’s hit.
The yen has slid against the dollar on expectations the BOJ will keep monetary policy ultra-loose, widening the divergence between the U.S. Federal Reserve’s aggressive rate hike plan.
The dollar climbed to a 24-year high on the yen on Monday after Japan’s ruling coalition’s strong election result indicated no change to ultra-easy monetary policy.
Under its yield curve control policy, the BOJ pledges to keep short-term rates at -0.1 percent and the 10-year bond yield around 0 percent as part of efforts to fire up inflation to its 2 percent target.
While inflation exceeded 2 percent for two straight months in May due largely to rising fuel costs, Kuroda has shrugged off the chance of a near-term rate hike on the view such cost-push inflation will prove temporary unless accompanied by higher wage growth.
Japanese Prime Minister Fumio Kishida said on Monday the government was ready to take additional new steps to cushion the blow to households from rising fuel and food prices.
“Prices are surging globally, which is pushing up prices in Japan, too. The government is ready to top up measures as needed” to help ease the pain from rising inflation, Kishida told a news conference.
“We will closely watch economic developments and take appropriate steps as needed at the appropriate timing,” Kishida said, when asked whether the government would compile a fresh extra budget and stimulus package. Prime Minister Fumio Kishida’s ruling coalition increased its majority in Sunday’s election after former leader Shinzo Abe was assassinated on the campaign trail. The victory makes it slightly easier for Kishida to amend Japan’s pacifist constitution, double defense spending and attack waning competitiveness.
One of Abe’s priorities was making his country a more credible partner to the United States, especially after the 2016 election of Donald Trump exposed deep American reservations about defending allies reluctant to spend on their own defense.
Japan is one of the few Asian countries with the technological and economic chops to counterbalance the People’s Liberation Army, yet in 2021 Tokyo’s military budget was $53 billion, an unintimidating 1.1 percent of economic output, per estimates by the Stockholm International Peace Research Institute. China invested $293 billion.
This undermines Japanese deterrence, and the parsimony, combined with pacifist restrictions on arms exports that only ended in 2014, has also hampered the development of domestic weapons manufacturers like Mitsubishi Heavy Industries
The conservative coalition’s victory was not a landslide, but nevertheless could smooth the push to amend Japan’s pacifist constitution and double defense spending.
