Exclusive: Kuroda says that BOJ & # 39; absolutely & # 39; can cut short-term interest rates if it should ease

WASHINGTON (Reuters) – The Bank of Japan will "certainly" cut short to medium-term interest rates if needed to ease monetary policy, said Central Bank Governor Haruhiko Kuroda, suggesting that deepening interest rates would be the most important tool to combat to increase foreign risks.

Kuroda also said that the BOJ already has a flexible framework that allows it accelerate the purchase of exchange-traded funds (ETFs) if the markets become unstable, signaling that it is willing to moderate stock price declines that could harm business sentiment.

“Broadly speaking, the world economy has become less powerful. And the timing of (accumulation) of world economic growth has been somewhat delayed, "Kuroda told Reuters, adding that the risk continues to be" quite high. "

" If we need further relief from economic conditions, we would certainly reduce short to medium-term interest rates. But we do not want to reduce super-long interest rates, ”he said on Saturday after attending the International Monetary Fund (IMF) and World Bank meetings.

The comments underscore BOJ's concern over the pain of the bitter US-China trade war and the slow global demand affecting the export-support economy, which could lead to an increase in monetary stimulus already this month.

They are also the strongest signal to date from Kuroda that if the BOJ were to ease, the most likely step would be to push the short-term interest rate target deeper into negative territory.

Reducing interest rates in the short and medium term would have a "positive" impact on the economy, while excessive cuts in super-long returns could hurt consumer sentiment by eroding investment returns for pension funds and life insurance companies, he said.

Under a policy called yield curve control (YCC), BOJ manages short-term interest rates at -0.1% and 10-year bond yields around 0% in an effort to achieve its elusive 2% inflation target. It also buys government bonds and risky assets such as the ETF.

MORE EASING STILL EFFECTIVE

Markets are many of the speculations BOJ could ease at its October 30-31 meeting, after it signaled last month's chance of imminent action by warning of escalating foreign risks.

Asked whether foreign risks remain high enough to justify relief at this meeting, Kuroda said it was "a little difficult to say definitively."

While trade talks between the US and China have made some progress, the conflict may continue and the fate of Britain's exit from the EU remains uncertain, he said.

Such foreign risks and cuts in international growth forecasts for the International Monetary Funds would affect BOJ's estimate of Japan's economic outlook, he added.

While reiterating that the BOJ did not hesitate to ease if the economy's momentum to reach the 2% inflation target weakened, Kuroda said he had no preconceived idea of ​​when to act.

“We have no predetermined political decisions. It all depends on financial data, ”he said, implying that a deal this month was hardly a done deal. "We need to look carefully, analyze global and domestic economic situations."

BOJ has stated that it has four tools to facilitate – deepening of negative interest rates, a cut in the long-term interest rate target, an increase in risky asset purchases and an acceleration in cash pressure.

While Kuroda has said that deeper negative rates are among the key options, analysts have warned that the move could backfire by pushing regional banks to financial problems and hurting consumers' moods.

When asked what other tools besides deeper negative prices BOJ can choose, Kuroda said that the bank can "combine a few options" or "change some aspects" of them – without elaborating.

“We can expand our asset purchase program. Our asset purchase program includes not only long-term government bonds, but also the ETF, ”he said. "There are various tools to influence the economy by facilitating monetary conditions."

BOJ commits to buy ETFs, so that its holdings increase approximately 6 trillion yen ($ 55.34 billion) per year, but add that the rate of purchase may fluctuate depending on market developments.

"Our ETF purchase is very flexible … Even under the current asset purchase program, we can significantly increase ETF purchases if necessary," Kuroda said, suggesting that BOJ can vary the purchase rate even without changing the commitment to buy at the current rate. at 6 trillion yen per year.

"In terms of BOJ, we still have tools that can be used as needed," he said. "I don't think the effect of monetary policy has gone down."