Kuroda sees room for further rate cuts below zero, possibly in September

In an interview over the weekend to the Sankei newspaper, Bank of Japan (BoJ) Governor Haruhiko Kuroda said there is “sufficient chance” of more easing at next month’s policy meeting. The phrasing was different from the usual "the central bank won’t hesitate to add stimulus when needed".

Kuroda said in the Sankei interview that the chances are high the BOJ will reach its inflation target in fiscal 2017, but uncertainties are rising due to the global economic situation. He said there is “technically” room for deeper negative rates while ruling out the use of so-called helicopter money. Markets now eagerly await Tuesday’s BoJ Governor Kuroda speech.

BOJ plans to release the outcome of a comprehensive review at its Sept. 20 and 21 board meeting on the day of the policy meeting in September. Board members will discuss the economy and financial situation based on the comprehensive review. The policy review comes as prices continue to fall, moving away from the bank’s target.

The Bank of Japan will not rule out deepening a cut to negative rates it introduced in February, the Sankei newspaper quoted Governor Haruhiko Kuroda as saying. The central bank will also consider whether to make any changes to the 80 trillion yen ($798 billion) per year massive asset-purchase plan once the outcome of a comprehensive assessment of its monetary policies is out in September, Kuroda said.

“The market thinks the BOJ is running out of ways” to achieve its 2 percent inflation target in the fiscal year starting in April, said Ryutaro Kono, chief Japan economist at BNP Paribas SA in Tokyo. “It’s important for the BOJ to dispel such concerns that it’s running out of ammunition.”

The Japanese government bonds remained marginally lower Monday as trading activity remained quiet with no major economic data or reports expected throughout the day. The benchmark 10-year bond yield, which moves inversely to its price, rose 1 basis point to -0.073 percent, the super-long 30-year JGB yield jumped 1-1/2 basis points to 0.352 percent and the short-term 2-year JGB yield bounced 1/2 basis point to -0.200 percent by 06:50 GMT.