As turmoil continues among financial markets, the Bank of Japan is seeking to take additional easing measures at its monetary policy meeting scheduled for March 18 and 19.
The European Central Bank and the U.S. Federal Reserve are scheduled to meet on March 12 and 17, respectively, to determine the monetary policy. The BOJ will likely have to make a difficult decision as the yen's appreciation might accelerate further if those central banks take additional steps to ease monetary policy.
The BOJ was cautious about the additional measures to ease policy at a time when the new coronavirus spread mainly in China and Japan. However, since last week, the spread of the virus has accelerated worldwide, and financial markets have become increasingly volatile.
Many BOJ officials predict the central bank will have to consider additional measures to ease monetary policy if the yen appreciates rapidly toward the 100 yen level against the dollar. Following the September 2008 collapse of U.S. investment bank Lehman Brothers, the BOJ did not participate in coordinated rate cuts by six central banks, including the Fed and the ECB. The yen subsequently surged to around 90 to the dollar, the highest level in 13 years.
"We want to respond appropriately without hesitation," Kuroda said at Monday's House of Councillors Budget Committee meeting.
As additional measures to ease the policy, the BOJ might lower the short-term interest rate from minus 1% and increase asset purchases such as exchange-traded funds.
"There is a good chance that the BOJ will cut interest rates now that the world's financial markets are in crisis," said Takahide Kiuchi, executive economist at Nomura Research Institute.
Some central bank officials, however, are cautious about the additional easing, considering the side effects of the additional measures to ease policy.
The problems caused by the new coronavirus have dealt a serious blow to tourism and other industries, and nonperforming loans held by financial institutions are expected to see a future increase. If financial institutions' profits deteriorate because of an increase in negative interest rates, they might become cautious about lending to companies, and financial stocks might fall, adversely affecting the overall stock price. Therefore, some argue the measures should be limited to supporting firms' funding by expanding or establishing a system to lend funds to financial institutions at low interest rates.
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