TOKYO - As the fallout from the U.S.-China trade war broadens, Bank of Japan policymakers are more open to discussing the possibility of expanding stimulus at their board meeting on Sept 18-19, sources familiar with its thinking say.
Increasing signs of a slowdown in global demand have made Japanese central bankers less confident about an early pickup in global growth, but their decision on whether or not to take further action to deal with it will be a close call for a divided board.
They may not reach a conclusion until the last minute as they scrutinise the market reaction to expected monetary easing steps by the European Central Bank and the U.S. Federal Reserve.
A dearth of policy options could complicate the debate at the meeting, which will follow the ECB's policy announcement on Sept. 12 and that of the Fed on Sept. 18.
"The pickup in global growth is taking longer than expected, which could affect Japan's output gap and hurt domestic demand," one of the sources said. "If risks to Japan's economy are deemed too high, there's a chance the BOJ may act," the source said, a view echoed by two other sources.
Deepening negative interest rates will be among key options if the BOJ were to ease, although the central bank may need to accompany that with measures to mitigate the pain any such move could inflict on financial institutions, the sources said.
"The BOJ's current policy framework targets interest rates, so it makes logical sense to consider moving around the targets first," said a source familiar with its thinking.
Another source, however, said other options were not off the table, and that it is likely the next move would depend on what kind of risks the BOJ is trying to battle.
Under a policy dubbed yield curve control (YCC), the BOJ guides short-term rates towards -0.1% and the 10-year government bond yield to around 0%. It also buys government bonds and risky assets in a bid to achieve its elusive 2% inflation target.
The BOJ has said it has four tools to ease: Deepening negative rates, cutting the 10-year yield target, ramping up its buying of risky assets or printing money at a faster pace.