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[TOKYO] Bank of Japan Governor Haruhiko Kuroda said there is room to slash interest rates to around minus 0.5 per cent, countering a growing suspicion that public criticism over January's decision to adopt negative rates will prevent him from pursuing with the policy.
Speaking in parliament, Mr Kuroda said he cannot indicate which policy tools the BOJ would use in case it decided to expand stimulus again as the decision would depend on economic conditions at the time.
"Of course, there's a possibility that we will decide to cut interest rates further," Mr Kuroda said. "Theoretically, there is room to do so," he said, when asked by an opposition lawmaker whether the BOJ could cut rates to around minus 0.5 per cent.
Mr Kuroda also said that negative rates work to weaken the country's currency, but emphasised that the BOJ wasn't targeting the exchange rate.
"Our monetary policy does not target exchange rates," he said, stressing that currencies are affected by various factors, not just by interest rate differentials between two countries. "All other factors being equal, however, (a negative rate policy) works to weaken a country's currency," he added.
The BOJ unexpectedly cut a benchmark interest rate to minus 0.1 per cent in January as it stepped up its faltering efforts to revive growth and pull Japan out of years of deflation.
But the historic shift to a radical policy prescription - adopted by major central banks in Europe - has failed to boost stock prices or arrest an unwelcome rise in the yen, drawing criticism from lawmakers for confusing, rather than calming, markets.
Since then, the BOJ has been in damage control with Mr Kuroda scrambling to find positives in the policy which is proving unpopular with both the public and banks.
The BOJ kept monetary settings unchanged on Tuesday and offered a bleaker view on the economy, signalling that it was ready to roll out further stimulus if needed to revive growth.
But in a nod to criticism over its negative rate policy, it removed a line from its prior statement in January that it is ready to cut rates further, triggering a bout of yen buying by investors betting Mr Kuroda would hold off on cutting rates further.
It also widened exemptions to negative rates to include US$90 billion in short-term funds dubbed money-reserve funds (MRFs), after the securities industry warned it could curb investment in the stock market.
Mr Kuroda said he saw no room to offer exemptions besides MRFs, which are different from other funds because it acts as a key settlement tool by giving investors a place to park their cash while they prepare for stock purchases.