Bank of Japan Governor Haruhiko Kuroda said on Friday the central bank was ready to expand monetary stimulus if needed, brushing aside the view the BOJ had little ammunition left to fight the next economic downturn.
Kuroda said it was true major central banks may have less room to cut interest rates because they are already very low after years of aggressive monetary easing.
"But that doesn't mean central banks have no ammunition left to ease further in response to financial developments," Kuroda told a news conference after the Group of 20 finance leaders' meeting.
"The BOJ also has room to ease monetary policy further if doing so becomes necessary," he said.
The remarks underscore the challenge major central banks face as they struggle to battle growing overseas headwinds to their economies with a dwindling policy tool kit.
The Federal Reserve and the European Central Bank have paused in their efforts to dial back crisis-mode policies. But the BOJ has failed to fire up inflation to its elusive 2 percent target despite years of money printing. It is now faced with the growing demerits of prolonged easing, such as the pain ultra-low rates inflict on financial institutions' profits.
Kuroda also said he has no plans now to change the central bank's forward guidance, or the message it sends to signal its policy intentions to financial markets.
"Our forward guidance was introduced to clarify our stance of patiently maintaining powerful monetary easing," Kuroda said.
"I think that stance is understood well by market players. In that sense, our forward guidance is showing its intended effect," he said.
Kuroda made the remarks, when asked about a proposal by the International Monetary Fund that the BOJ enhance its communication with markets by clarifying the timing for maintaining ultra-low interest rates.
Under a policy dubbed yield curve control (YCC), the BOJ guides short-term interest rates at minus 0.1 percent and the long-term yield around zero percent.
In July last year, it introduced a forward guidance pledge to keep interest rates very low for an "extended period" - language some critics have said is too vague.
Kuroda said the current forward guidance was appropriate because it struck the right balance between the need to make the commitment effective and to leave flexibility for future policy decisions.
He also said there was no need to modify a loose pledge the BOJ makes to buy government bonds so that the balance of its holdings increase at an annual pace of roughly 80 trillion yen ($714.16 billion).
Despite having shifted to a policy targeting rates, the BOJ has kept the bond-buying commitment to appease advocates of aggressive money printing in its nine-member board.
The IMF has called on the BOJ to phase out the loose pledge on the pace of bond buying, arguing that doing so would avoid causing confusion in markets on what the central bank was focusing on in guiding policy.
"There has been no change to our stance of buying large amounts of government bonds," Kuroda said. "I don't see the need to change (the bond-buying pledge) at this stage."