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Japanese interest rates set to dive deeper into negative territory

By Philip Smith

Stimulus needed as Japanese export market continues to contract

The Bank of Japan is expected to reduce its interest rate further into negative territory as it battles to counter global threats to its export markets.

Bank governor Haruhiko Kuroda told the Japan Times it will “certainly” reduce short- to medium-term interest rates if it needs to ease monetary policy.

Its short-term interest rate has remained at -0.1 per cent since 2016.

“On the whole, the world economic outlook has become less buoyant,” said Kuroda. “The timing of world economic growth has been somewhat delayed.”

Japan’s exports contracted for a 10th straight month in September, reports Reuters, which is the driving force behind speculation that the central bank could ease monetary policy as soon as next week to support an economy hit by a slowdown in global demand.

In the year to September, exports fell 5.2 per cent, led by car and aeroplane parts to the US and semiconductor production equipment to South Korea. The fall was larger than a four per cent drop expected by economists and marked the longest run of declines in exports since a 14-month stretch from October 2015 to November 2016.

The Bank of Japan is worried about the impact the US-China trade wars will have on its export-reliant economy. “If we need further easing of monetary conditions, we would certainly reduce short- to medium-term interest rates,” added Kuroda.

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