BOJ reassurance on coronavirus bolsters speculation of global policy action
By Leika Kihara
TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Monday the central bank will take necessary steps to stabilise markets jolted by the coronavirus outbreak, bolstering speculation about coordinated global policy action.
Kuroda's comments, made in an emergency statement just days after a similar move by Federal Reserve Chair Jerome Powell, were welcomed by markets as a signal the world's biggest central banks were mustering a coordinated response to the crisis.
French Finance Minister Bruno Le Maire also said on Monday that G7 major economies would take "concerted action" to limit damage from the epidemic, with the group's finance ministers to discuss the best approach by phone this week.
Kuroda said financial markets have made "unstable movements" amid heightened uncertainty over the impact on the economy from the epidemic.
"The BOJ will monitor developments carefully, and strive to stabilise markets and offer sufficient liquidity via market operations and asset purchases," he said.
The statement's language suggested the BOJ would make full use of its existing tools to flood markets with funds, before pondering additional monetary easing steps.
Indeed, the BOJ subsequently offered 500 billion yen ($4.62 billion) in two-week funds via market operations. Investors also expect the central bank to ramp up daily purchases of exchange- traded funds (ETF) to put a floor on stock prices.
"Kuroda's statement focused on market operations and asset purchases, which meant the BOJ may make its ETF buying more flexible to support stock markets or take steps to avoid money markets from tightening," said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.
In his own unscheduled statement issued on Friday, Powell said the Fed would "act as appropriate" to support the economy in the face of risks posed by the epidemic.
Goldman Sachs' economists Jan Hatzius and Daan Struyven said Powell's statement "strongly hints" at an interest rate cut at or even before the Fed meets on March 17-18, as well as the likelihood of coordinated action.
"Chair Powell's statement on Friday suggests to us that global central bankers are intensely focused on the downside risks from the virus," Hatzius and Struyven said in a note.
"We suspect that they view the impact of a coordinated move on confidence as greater than the sum of the impacts of each individual move."
JAPAN FEARS RECESSION
Kuroda's comments reinforced that view. Asian shares steadied from early losses on Monday as investors placed hopes on a coordinated global policy response to weather the damaging economic impact of the coronavirus epidemic.