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Bank of Japan comments on coronavirus reinforce hopes for global monetary policy measures

UNITED STATES (OBSERVATORY NEWS) — The head of the Bank of Japan Haruhiko Kuroda said on Monday that the central bank would take the necessary steps to stabilize markets shocked by the outbreak of coronavirus, reinforcing expectations of a coordinated global monetary policy.

Comments Resorts made in an emergency statement just a few days after a similar move by Fed Chairman Jerome Powell was seen by markets as a signal that the world’s leading central banks are preparing a coordinated response to the crisis.

In addition, French Finance Minister Bruno Le Mayor said Monday that the G7 countries will take “concerted action” to limit the damage from the epidemic.

Kuroda said markets showed “volatile fluctuations” due to increased uncertainty about the impact of the epidemic.

“The Bank of Japan will closely monitor developments and strive to stabilize markets and offer sufficient liquidity through market operations and asset purchases,” he said.

This signals that the Bank of Japan will make full use of existing instruments to flood the markets with cash before considering further steps to ease monetary policy.

“Kuroda’s statement focused on market operations and asset purchases, which meant the Bank of Japan could make ETF purchases more flexible to support stock markets or take steps to avoid tightening money market conditions,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.

Powell said in a statement that the Fed will “act as needed” to support the economy.

Goldman Sachs economists Ian Hatzius and Daan Struyven said Powell’s statement “strongly hints” at a rate cut during or even before the Fed meeting March 17-18, as well as the likelihood of coordinated action.

But some analysts have cautioned the markets against too high rates of additional easing by the Bank of Japan or a global coordinated reduction in borrowing costs, given the limited arsenal of some central banks.

Former Bank of Japan governing board member Takahide Kiuchi said Kuroda’s statement was not a preliminary announcement of an early easing.

“The US, European and Japanese central banks may issue a joint emergency statement promising to take action against market turbulence,” said Kiuchi, currently an economist at Nomura Research Institute.

“This is likely to happen before any joint cuts in interest rates begin. In any case, I don’t think that the conditions have worsened enough for this to happen.”

The next meeting of the Bank of Japan will be held March 18-19.

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