BOJ policymaker vows to keep rates ultra-low, frets over weak inflation

BOJ policymaker vows to keep rates ultra-low, frets over weak inflation
FILE PHOTO: Newly-appointed Bank of Japan (BOJ) board member Yukitoshi Funo arrives at his inauguration news conference at the BOJ headquarters in Tokyo, July 1, 2015. REUTERS/Toru Hanai -
Toru Hanai(Reuters)
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By Leika Kihara

HIROSHIMA, Japan (Reuters) – The Bank of Japan could maintain current ultra-low interest rates beyond the timeframe it now sets, a board member said on Wednesday in a sign of the central bank’s growing concern over global risks and stubbornly low inflation.

BOJ policymaker Yukitoshi Funo said Japan’s economy is likely to keep expanding moderately, as an expected pick up in overseas demand help exports emerge from the doldrums.

But he warned that risks to the outlook were “varied and big,” including from simmering U.S.-China trade tensions and uncertainty over Britain’s plan on leaving the European Union.

Inflation also remains subdued as companies hold off price hikes by absorbing rising costs through innovation, said Funo, a former auto executive.

“Given price growth and inflation expectations aren’t heightening much, it’s necessary to maintain sufficiently low rates for a prolonged period to achieve the BOJ’s price target,” Funo told business leaders in Hiroshima, western Japan.

The widening fallout from the U.S.-China trade war and slowing global demand have forced many major central banks to cut interest rates or shift to a more dovish policy stance.

In April, the BOJ put in place new forward guidance – or communication on the future policy path – that pledges to keep rates at current ultra-low levels “for an extended period, at least until around the spring of 2020.”

Funo said the forward guidance leaves open the possibility of the BOJ maintaining current ultra-low rates beyond spring 2020.

“We say ‘at least’ until spring 2020 because there’s a good chance current low rates will be maintained beyond spring next year,” said Funo, who has consistently voted with the majority of the nine-member board.

The BOJ kept policy steady last month but governor Haruhiko Kuroda stressed his readiness to ramp up stimulus if the economy loses momentum to achieve his 2% inflation target.

Some analysts say the central bank could ease policy further as early as this month, when it conducts a quarterly review of its growth and inflation forecasts.

Under a policy dubbed yield curve control (YCC), the BOJ guides short-term rates at minus 0.1% and long-term rates around 0% via heavy asset buying to accelerate inflation to its target.

(Reporting by Leika Kihara; Editing by Chris Gallagher & Shri Navaratnam)

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