"In responding to significant downward pressure (on growth), a policy mix of monetary easing, flexible fiscal policy and steps to raise the natural rate of interest could be effective." The remarks came after the widening fallout from the bitter US-China trade war forced the International Monetary Fund to cut its world growth forecast, putting pressure on central banks to do more to fend off heightening global risks.
The BoJ has signalled the chance of easing as early as this month as weak global demand hurt Japan's export-reliant economy. Kuroda said while the BoJ will maintain its massive stimulus program to achieve its 2% inflation target, it must also take steps to reduce the cost of prolonged easing.
"Financial system stability should be addressed primarily through macro-prudential steps. But no prudential tool-kit is perfect," Kuroda said. "Monetary policy influences broad areas of financial activity. The BoJ should examine financial functioning and make appropriate policy responses, so that the cost of monetary easing is reduced."
Kuroda also said the BoJ saw the need to "pay attention to the shape of the yield curve," as excessive falls in super-long bond yields will flatten the curve and erode the returns pension funds and insurance firms earn from their investment.