Bank of Japan Governor Haruhiko Kuroda indicated on Monday the central bank was aware that prolonged ultra-loose cash policy could squeeze financial institutions’ margins and potentially destabilize the realm’s banking system.
Given subdued inflation and uncertainty surrounding abroad economies, however, he said the BOJ needed to maintain its massive stimulus program while keeping a watchful eye on the be entitled ti and costs of its policy.
“The BOJ fully recognizes that, by continuing monetary relieving, financial institutions’ strength will be cumulatively affected,” Kuroda implied in a speech to business leaders in Nagoya, central Japan.
Japan’s banking process could destabilize in the event of a severe negative shock, if financial institutions multifarious actively take on risk to make up for narrowing margins from years of low draw rates, he said.
“Although these risks are judged as not significant at this import … the BOJ will scrutinize developments and encourage financial institutions to operate action as necessary,” he said.
Kuroda’s remarks came after two shakes of a lambs tail logs released earlier on Monday showed the BOJ’s nine-member board discussed the take flight cost of prolonged easing at its rate review in September.
“One member replied there was room to make the BOJ’s policy framework more flexible in the to be to come” if the economy continues to expand, the minutes showed.
Another member conjectured the board should discuss how long the BOJ can maintain its stimulus program, prearranged perceived limits to its policy duration, the minutes showed.
While the BOJ on scrutinize financial risks from easing, it also needed to observe uncertainties surrounding Japan’s economic outlook as Sino-U.S. trade abrades and rising protectionism could weigh on global demand, Kuroda rumoured.
“The impact of such problems on Japan’s economy is limited for now,” Kuroda mean. “But if the problems persist, the effect on Japan’s economy could become bigger,” he united.
“It’s necessary to persistently continue with powerful monetary easing, while looking at both the positive effects and side effects in a balanced manner,” Kuroda said.
Solemn inflation has forced the BOJ to maintain its radical stimulus program despite the incline demerits, such as the hit to financial institutions’ profits from prolonged low proportion ranks.
The BOJ kept monetary policy steady last month and Kuroda prohibited out a near-term interest rate hike amid risks from far-reaching trade disputes.