(Reuters) - The Bank of Japan kept monetary policy steady on Friday but tempered its optimism that robust exports and factory output will underpin growth, a nod to heightened overseas risks that threaten to derail a fragile economic recovery.
Factories across the globe slammed on the brakes last month as demand was hit by the U.S.-China trade war, slowing global growth and political uncertainty in Europe ahead of Britain’s departure from the European Union.
At a two-day rate review ending on Friday, the BOJ maintained a pledge to guide short-term interest rates at minus 0.1 percent and 10-year government bond yields around zero percent. The widely expected decision was made by a 7-2 vote.
Following are comments from BOJ Governor Haruhiko Kuroda at his post-meeting news conference:
“It is true Japan’s exports and output are being affected by lean overseas growth. On the other hand, domestic demand continues to grow. We maintain our baseline view that the economy is expanding moderately.
“It is likely to take longer to achieve our price target. However, the output gap is improving ... Most board members think it’s more appropriate to patiently maintain our current stimulus program.”
ON FINANCE MINISTER TARO ASO’S REMARKS OVER PRICE TARGET
“We are not saying that we only care about achieving our price target. Our goal is that prices should rise gradually, reflecting an improvement in corporate profit and job growth rate ... We also need to keep in mind the impact our policy has over market functioning and financial intermediation.”
ON WHETHER BOJ SHOULD MAKE INFLATION TARGET MORE FLEXIBLE “I don’t think there is a need to make any changes to our price target.”
ON “MODERN MONETARY THEORY” DEBATED BY U.S. ACADEMICS”I think it is an extreme argument that won’t be accepted widely. The government holds responsibility over fiscal policy and Japan’s public debt is very high. It’s important to improve Japan’s fiscal health in the long term.”
ON NEGATIVE INTEREST RATES’ IMPACT ON BANKING SYSTEM “Many European countries maintain negative interest rates and apply them to a pretty big pool of funds ... In Japan, we only apply minus 0.1 percent negative rates and only to a small portion.”
ON WEAKNESS IN OVERSEAS ECONOMIES “The chance of overseas economies worsening further is low. It’s a risk. However, the baseline scenario is for overseas economies to pick up in the latter half of this year, particularly areas that are currently witnessing signs of weakness such as China and Europe.”
ON JAPAN’S PROPERTY MARKET”We need to keep an eye on whether banks are extending too many loans for investment in property, and whether the balance of return-and-risk is appropriate.
“Property loans are extended for a longer period of time. While property rates in big cities are high, those in a few regional areas also appear to be rising. We hope to look carefully into the development in Japan’s real estate market and banks’ lending attitude.”
Reporting by Leika Kihara, Editing by Sherry Jacob-Phillips