Bank of Japan Governor Haruhiko Kuroda said a mix of fiscal and monetary stimulus would give a bigger boost to the economy than taking fiscal and monetary steps individually, signalling that the government could play a bigger role in helping spur growth.
But he said the BOJ would not time any easing steps with the government’s decision to ramp up spending, stressing that keeping current ultra-low interest rates alone would enhance the effect of fiscal policy.
“If the government saw the need to use fiscal policy (to support growth), a mix of fiscal and monetary policies would have a bigger impact than deploying fiscal and monetary steps separately,” he told reporters on Tuesday.
“That’s not to say we have any particular plan to take monetary steps in tandem with bigger government spending.”
Some Japanese lawmakers are calling for bigger spending if a sales tax hike in October pushes the country into recession.
Under a policy dubbed yield-curve control, the BOJ pledges to guide short-term rates at -0.1% and the 10-year bond yield around 0%.
It kept policy steady last week but tweaked its forward guidance to say it would maintain ultra-low rates or even cut them for as long as needed to gauge overseas risks.
Kuroda has repeatedly said if the BOJ were to ease, it would seek to push down short- to medium-term borrowing costs without causing an excessive decline in super-long yields.
One way to keep long-term yields from falling too much could be for the government to issue more super-long bonds, he said.
“If the government were to issue 50-year government bonds, or more 20-, 30- and 40-year bonds, that could prevent excessive falls in super-long yields,” he said.
Kuroda said global growth was now expected to pick up by around the middle of next year, about six months later than what the BOJ had previously expected.
He maintained his optimistic view on Japan’s economy, saying it would sustain a moderate expansion on robust capital expenditure and a tight job market that is helping households weather the pain from the sales-tax hike in October.