Bank of Japan Governor Rules Out Possibility of Near-term Interest Rate Increase

Forex News

Bank of Japan Governor Haruhiko Kuroda said that the central bank must maintain its massive stimulus program to underpin growth, considering subdued inflation and various risks to the economic outlook. Kuroda also rejected possibility of a near-term interest rate hike. Kuroda also said the Bank of Japan had tools to expand stimulus if needed, including cutting rates and expanding its asset purchases.

"Risks to Japan's economy are tilted toward the downside. We need to pay particular attention to protectionist moves such as the Sino-US trade friction. Raising interest rates now to create policy space for future economic downturns may risk delaying achievement of our inflation target," Haruhiko Kuroda said.

Under a policy dubbed yield curve control, the Bank of Japan guides short-term rates at -0.1% and long-term rates around zero percent to achieve its 2% inflation target. Japan’s inflation rate stood at 1% in October, unchanged from the previous month. The Bank of Japan slightly lowered the inflation forecast for the fiscal year ending March 2019 to 0.9% from 1.1%.

Economists expect the world’s third-biggest economy to have shrunk an annualized 1.9% in the third quarter, worse than the preliminary reading of a 1.2% contraction. That would translate into 0.5% quarter-on-quarter fall in gross domestic product, compared with the initial estimate of a 0.3% decline.