Kuroda says aware of BOJ's simple policy that hurts banks, warns of global risks

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By Leika Kihara

NAGOYA, Japan (Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Monday that long-term ultra-loose monetary policy could push the financial institutions' margins and potentially destabilize the country's banking system.

Given poorer inflation and uncertainty about overseas economies, he said that BOJ needed to maintain its massive stimulation program while keeping a beautiful eye on

"BOJ fully recognizes that by continuing monetary easing, the strength of the financial institution will be cumulatively affected, "Kuroda said in a speech to business leaders in Nagoya, central Japan.

Japan's banking system can destabilize in the event of a serious negative shock, if financial institutions are more actively taking risks to reduce margins from years of low-interest rates, he said.

"While these risks are considered not significant at this point, BOJ will review developments and encourage financial institutions to take action as needed," he said.

Kuroda's remarks came after minutes published earlier on Monday, BOJ's nine members board discussed the rising cost of long-term relief in its assessment in September.

"One member said there was room for making BOJ's framework conditions more flexible in the future" if

Another member said that the board should discuss how long BOJ can maintain its incentive program, given perceived limits for policy duration, showed minutes .

While BOJ will investigate economic risk from relief, it also needed to assess uncertainty about Japan's economic outlook, such as Chinese-American trade francs and increasing protection could weigh on global demand, Kuroda said.

"The effect of such problems on Japan's economy is limited for now, Kuroda said." But if the problems persist, the effect on Japan's economy may be greater, "he added.

" It is necessary to continue with strong monetary easing, while considering both the positive effects and side effects in a balanced manner, "Kuroda said.

Much inflation has forced BOJ to maintain its radical stimulus program despite the rising condemnations, such as hits for financial institutions' profits from long-term low interest rates.

BIR kept monetary policy stable during the month, and Kuroda ruled

(Additional Report by Stanley White in Tokyo, Editing Chang-Ran Kim and Sam Holmes)

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