TOKYO: Bank of Japan Governor Haruhiko Kuroda said the global economic outlook had brightened due to a preliminary US-China trade deal but warned that risks to Japan’s recovery remain high.

Kuroda said there were limits to how much the BOJ could deepen negative interest rates as prolonged ultra-low borrowing costs hurt financial institutions, suggesting that no immediate expansion of stimulus was forthcoming.

As part of efforts to ease the side-effects of its huge asset buying, the BOJ unveiled details of a scheme first flagged in April to lend some of its holdings of exchange-traded funds (ETF).

“It’s true we’ve seen some positive developments regarding overseas risks,” Kuroda said, welcoming receding fears of a disorderly Brexit and recent progress made by Washington and Beijing.

“Things are moving forward but uncertainty remains high. We still need to guard against downside risks to Japan’s economy.”

Kuroda spoke after the BOJ’s decision to maintain its short-term rate target at -0.1 percent and for 10-year bond yields at zero.

The central bank also kept intact its assessment that Japan’s economy continues to expand moderately as a trend, pointing to an expected boost to growth from the government’s $122 billion spending package unveiled on Dec. 5.

But the BOJ offered a gloomier view on factory output.

“Industrial production is falling due mainly to natural disasters,” it said, revising down its view from October.

The decision keeps Japan in line with the US Federal Reserve and the European Central Bank.

“The BOJ will likely stand pat throughout next year given the Fed probably won’t raise or cut interest rates, which should keep yen moves steady,” said Izuru Kato, chief economist at Totan Research.

Years of heavy money printing have failed to fire up inflation to the BOJ’s 2 percent target, forcing it to maintain a massive stimulus despite the hit inflicted on financial institutions’ profits from prolonged ultra-low rates.

Koichi Hamada, a key economic adviser to Prime Minister Shinzo Abe, criticized the BOJ’s negative rate policy and warned against pushing borrowing costs too low.

Kuroda countered the view the BOJ had reached the limits of monetary easing, saying that deepening negative rates was among the central bank’s policy options.

Reuters