BOJ newcomer shuns rate cut as tool to fight coronavirus impact

• The BOJ eased monetary policy earlier this month by ramping up purchases of risky assets, joining central banks across the world in their efforts to prevent a global recession.
• The BOJ must be ready to take additional steps in April if infections spread faster than expected in Japan and put companies under further strain.
• Under a policy dubbed yield curve control (YCC), the BOJ guides short-term rates at -0.1pc and the 10-year government bond yield around 0pc.

TOKYO: The Bank of Japan's new board member Seiji Adachi said on Thursday providing liquidity to markets was a better way to respond to an economic crisis, such as that posed by the coronavirus pandemic, than cutting interest rates.

The BOJ eased monetary policy earlier this month by ramping up purchases of risky assets, joining central banks across the world in their efforts to prevent a global recession.

"If the economy were to face a crisis, what's important is for the central bank to provide ample liquidity rather than move its interest rate targets," Adachi said in his inaugural news conference.

The BOJ must be ready to take additional steps in April if infections spread faster than expected in Japan and put companies under further strain, he said.

"For now, I don't think it has gone that far. But developments change quickly, so we must be vigilant," said Adachi, an economist formerly with Marusan Securities who is seen as a proponent of aggressive monetary easing.

He replaced Yutaka Harada, whose term expired on Wednesday.

The BOJ is under pressure to expand stimulus again in April, as the broadening fallout from the pandemic adds to the pressure on an already weakening economy.

Adachi nevertheless said that the BOJ had room to push rates deeper into negative territory, a move that could help stimulate growth once Japan succeeds in containing the coronavirus.

But for now the focus should be on helping companies weather funding strains, he said, adding that the BOJ could boost its buying of exchange-traded funds (ETF) and government bonds.

"When the virus is contained, demand could rebound. As such, it's hard to predict how much the BOJ could deepen negative rates or how much further it can ramp up stimulus," he said.

Under a policy dubbed yield curve control (YCC), the BOJ guides short-term rates at -0.1pc and the 10-year government bond yield around 0pc.

It also buys government bonds and risky assets such as ETFs as part of efforts to funnel money to the economy.

Adachi disavowed the proposal he had made as a private economist that the BOJ buy foreign bonds, saying he no longer saw this as a monetary tool as it would interfere with the finance ministry's jurisdiction on currency policy.

He also said there were questions on whether aggressive money printing alone could prop up inflation expectations.

"We need to look carefully at whether recklessly printing money would push up inflation expectations at a time like this, when inflation is slowing due to the coronavirus outbreak but remains in positive territory," Adachi said.