TOKYO (MNI) – Bank of Japan Governor Haruhiko Kuroda said Thursday that the central bank has tools to stimulate the economy, even when the bank faces the zero lower bound, but needs to carefully watch both the favorable and unfavorable effects.
Kuroda said, “In a low interest rate environment, there is a greater risk that central banks will face the zero lower bound problem, as the starting point of monetary easing is to lower market interest rates below the neutral level of interest rates.” He was speaking at the G20 symposium cosponsored by the BOJ and the Ministry of Finance.
Other key points from Kuroda’s speech:
–“We have invented various unconventional monetary policy measures to tackle (the zero lower bound), such as negative interest rate policies, lowering of longer term interest rates and depressing risk premia by purchasing various assets based on experiences of past financial crises.”
–“We now know we have the tools to stimulate the economy even when we face the zero lower bound problem.”
–“However, we need to carefully monitor and evaluate the effects of these unconventional measures on economic developments, prices and financial conditions since the transmission mechanisms, benefits, and side-effects of these measures could be different from those of conventional monetary policy measures based on controlling short-term interest rates.”
–“The natural rate, which is consistent with potential growth rates, will decline if long-term growth rates decline together with a declining and aging population.”
–“There will be downward pressure on real interest rates as the natural rate declines.”
–“As a result, nominal interest rates consistent with their economic potential decrease, given that the inflation rates are constant.”
–“An aging and declining population doesn’t necessarily push down macroeconomic and per capital growth rates.” “Even though demographic changes have a negative impact on economic growth, economic growth could be stimulated by promoting capital accumulation and innovation.”
–It is the most pressing agenda “how do we maintain a social security system with an aging population and fewer children.” “We continuously assess the most appropriate public social security system, taking into account of significant changes to demographic structures.”
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