By Leika Kihara
TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Monday the central bank was ready to take “appropriate action without hesitation” with a close eye on how market volatility triggered by the coronavirus outbreak could affect the economy.
But Kuroda stopped short of making any direct reference to the BOJ’s readiness to ramp up stimulus, saying the central bank will continue to use market operations and existing asset-buying programs to pump out liquidity and stabilize markets.
“Uncertainty over Japan’s economic outlook is heightening. Investor sentiment is deteriorating somewhat, with market moves unstable,” Kuroda told parliament.
“Markets remain jittery, so we’ll take appropriate action without hesitation in line with the guidance we laid out last week,” he said.
Kuroda last week issued an emergency statement saying that the BOJ will offer sufficient liquidity via market operations and asset purchases to stabilize markets.
The statement’s language suggested the BOJ would make full use of its existing tools to flood markets with funds, before pondering additional monetary easing steps.
While many BOJ policymakers are wary of tapping their dwindling ammunition too hastily, they are under pressure to top up stimulus at next week’s rate review as an unwelcome spike in the yen threatens to put more pressure on the export-reliant economy.
The yen <.JPY> jumped more than 3% to a day high of 101.58 per dollar, its highest in three years, as investors moved into assets perceived to be havens in time of global market turmoil.
Tokyo’s Nikkei average <.N225> tumbled to 14-month lows as the global spread of the coronavirus and collapsing oil prices fed a heavy sell-off.
“We’ll take appropriate action without hesitation as needed with an eye on the impact of the spread of the coronavirus, particularly through domestic and overseas market moves,” Kuroda said.
In the past, Kuroda had frequently said the BOJ will “take additional monetary easing steps without hesitation” if risks threatened to derail the path toward achieving the bank’s 2% inflation target.
Japan’s economy shrank more than initially estimated in the fourth quarter, data showed on Monday, and the impact of the coronavirus outbreak is increasing the risk of a recession.
Sources have told Reuters the BOJ may take steps to ensure companies hit by the outbreak do not face a financial squeeze before the March end of the current fiscal year.
While the recent market volatility has heightened the chance the BOJ will take bolder monetary easing steps next week, there is uncertainty on what measures it could take.
The BOJ is likely to take a cue from the Federal Reserve’s emergency interest rate cut last week, which did little to ease market jitters over the fallout from the health crisis.
Finance Minister Taro Aso told the same parliament committee that fiscal policy may have a bigger role to play in propping up the global economy.
Under a policy dubbed yield curve control, the BOJ guides short-term rates at -0.1% and the 10-year government bond yield at around zero. It also buys risky assets such as ETFs to funnel money to the economy.
(Reporting by Leika Kihara; Editing by Chris Gallagher and Kim Coghill)