BOJ's Kuroda, with eye on economy and markets, says ready to ease more

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda stressed on Tuesday his readiness to expand monetary policy still further, saying that market moves would be key factors the central bank would examine in deciding when and how it might next expand stimulus.

Bank of Japan (BOJ) Governor Haruhiko Kuroda speaks during an upper house financial committee meeting of the Parliament in Tokyo, Japan in this February 18, 2016 file photo. REUTERS/Toru Hanai/Files

Kuroda maintained his optimism that Japan’s economy was recovering moderately, despite last week’s “tankan” survey that showed business mood souring on weak emerging market demand.

But he reiterated the BOJ’s readiness to ease again if risks threatened prospects for accelerating inflation, now at a dead halt, toward its 2 percent target.

“For now, the effect of negative interest rates is very strong so we’d like to steadily proceed with this policy,” Kuroda told parliament.

The BOJ would not hesitate to take action either by accelerating asset purchases, buying more risky assets or pushing interest rates deeper into negative territory, he said.

Neither would the BOJ pre-determine what steps it would take or how it could combine measures were it to ease again, Kuroda said, noting that the best move would depend largely on economic and price developments at the time.

“We won’t necessarily chose a rate cut just because it’s easier to do so (than other policy means),” he said.

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Kuroda said developments in financial markets, as well as in the economy and in prices, would be key factors for the BOJ when deciding whether, when and how it would expand stimulus.

“We need to take a comprehensive look at various factors in deciding (the best mix of steps) at the time including market moves, particularly those in Japan,” he said.

The BOJ stunned markets in January by deciding to add negative interest rates to its massive asset-buying program in a fresh attempt to reflate the economy out of the doldrums, but the move has failed to boost stock prices or arrest an unwelcome rise in the yen.

Japan’s business sentiment worsened in the three months to March and companies’ inflation expectations weakened, a quarterly BOJ tankan survey showed, keeping pressure on the central bank to do more.

Companies have also been reluctant to boost capital expenditure and wages, clouding the outlook for the success of premier Shinzo Abe’s “Abenomics” stimulus policies.

Wages rose for the first time in four months in February but only at 0.4 percent from a year earlier, data showed on Tuesday.

Japan’s economy shrank in October-December last year on weak exports and consumption. Many analysts expect it to show another contraction in January-March, posting two straight quarters of negative growth and meeting the technical definition of a recession.

Reporting by Leika Kihara; Editing by Chang-Ran Kim and Eric Meijer