TOKYO — The Bank of Japan (BoJ) has room to deepen negative interest rates, Governor Haruhiko Kuroda said on Tuesday, but he signaled there were limits to how far it can cut rates or ramp up stimulus.

Kuroda shrugged off the view held by some critics that the BoJ had run out of tools to expand an already massive stimulus, saying there was consensus within the central bank that it can deepen negative rates beyond the current -0.1%.

But he said the BoJ must carefully weigh the benefits and costs of further easing, suggesting the hurdle for expanding stimulus has risen due to the cost of prolonged easing, such as the effect it has on financial institutions’ profits.

“There is plenty of scope to deepen negative rates from the current -0.1%,” Kuroda told a semi-annual parliament testimony on monetary policy.

“But I’ve never said there are no limits to how much we can deepen negative rates, or that we have unlimited means to ease policy,” he said.

Kuroda also said there was still enough Japanese government bonds (JGB) left in the market for the BoJ to buy, playing down concerns its huge purchases have drained market liquidity.

After years of heavy purchases to flood markets with cash, the BoJ now owns nearly half of the JGB market.

On Japan’s economy, Kuroda repeated his view it will likely continue expanding but warned of the potential fallout from slowing global growth.

“Japan’s economy is expected to continue expanding and inflation will gradually head towards our 2% target. But we need to remain vigilant to downside risks, particularly those regarding the global economy,” he said.

Under a policy dubbed yield-curve control, the BoJ pledges to guide short-term rates at -0.1% and the 10-year bond yield around 0%. It also buys government bonds and risky assets to achieve its 2% inflation target, which has so far been elusive.

The BoJ kept policy steady last month but tweaked its forward guidance to say it would maintain ultra-low rates or even cut them for as long as needed to gauge overseas risks. — Reuters