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UPDATE 2-Kuroda says BOJ could ease policy more, still has tools available

Fri, 18th Oct 2019 20:15

* Some in G20 said monetary space diminishing - Kuroda

* Shrugs off view BOJ running out of policy ammunition

* BOJ will scrutinise economy in deciding if to act

* IMF says deepening negative rate an option for BOJ
(Adds IMF quotes)

By Leika Kihara and David Lawder

WASHINGTON, Oct 18 (Reuters) - Bank of Japan Governor
Haruhiko Kuroda said on Friday the central bank could ease
monetary policy further if needed to spur growth, shrugging off
views that it has used up ammunition to fight the next economic
downturn.

A senior International Monetary Fund official also said
deepening negative interest rates remained an option if the BOJ
were to ease, though adding that any such move should be
accompanied by fiscal and structural steps to be effective.

"We think that lowering the negative interest rate remains
an option. Of course, given stubbornly anchored inflation
expectations, a whole package (of steps) is needed, especially
structural reforms," Odd Per Brekk, who is the IMF's mission
chief of Japan, told Reuters on Friday.

The remarks came amid simmering market speculation that the
BOJ could ease policy as early as this month such as by
deepening negative rates - a controversial move given the strain
years of ultra-low rates is inflicting on commercial bank's
profits.

The IMF cut its global growth forecasts this week as
manufacturers felt the pinch from the U.S.-China trade war,
adding pressure on the BOJ to ramp up stimulus to prevent
external headwinds from derailing a fragile recovery.

IMF WARNS OF OVER-RELIANCE ON C.BANKS

Coming out from a two-day meeting of G20 finance ministers
and central bank heads, Kuroda said some countries did mention
that prolonged periods of loose monetary policy have left them
with less room to ramp up stimulus.

But the case for Japan was different, he said, stressing the
BOJ's readiness to top up monetary support if heightening global
risks threaten achievement of its 2% inflation target.

"It's not as if we have limited monetary policy space. If
needed, we could take additional easing steps," Kuroda told a
news conference hosted by Japan as chair of this year's G20
meeting.

"We will carefully analyze economic and price developments
in deciding whether such measures are necessary," he said.

While warning of heightening risks to global growth, the IMF
has urged policymakers to avoid relying too heavily on
already-stretched monetary policy tools in spurring growth.

"There were some views expressed at the G20 meeting that in
general, prolonged periods of monetary easing have diminished
space for additional easing," Kuroda said.

"But it's hard to generalise that monetary policy space has
diminished, because much depends on the economic and price
developments of each country," he said.

Kuroda also said there were no signs yet that the BOJ's
ultra-loose monetary policy was impairing Japan's banking system
by discouraging financial institutions to boost lending.

The BOJ said last month it will more thoroughly assess
economic and price developments at the Oct. 30-31 rate review
due to heightening global risks, signaling the chance of easing
policy as early as this month.
(Reporting by Leika Kihara and David Lawder;
Editing by Andrea Ricci and Sandra Maler)

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