By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) – The Bank of Japan kept monetary policy steady on Thursday and upgraded its economic forecast for next fiscal year, but warned of escalating risks to the outlook as new coronavirus emergency measures threatened to derail a fragile recovery.

BOJ Governor Haruhiko Kuroda said the board also discussed the bank’s review of its policy tools due in March, though dropped few hints on what the outcome could be.

“Our review won’t focus just on addressing the side-effects of our policy. We need to make it more effective and agile,” Kuroda told a news conference.

As widely expected, the BOJ maintained its targets under yield curve control (YCC) at -0.1% for short-term interest rates and around 0% for 10-year bond yields.

In fresh quarterly projections, the BOJ upgraded next fiscal year’s growth forecast to a 3.9% expansion from a 3.6% gain seen three months ago based on hopes the government’s huge spending package will soften the blow from the pandemic.

But it offered a bleaker view on consumption, warning that services spending will remain under “strong downward pressure” due to fresh state of emergency measures taken this month.

“Japan’s economy is picking up as a trend,” the BOJ said in the report, offering a slightly more nuanced view than last month when it said growth was “picking up.”

While Kuroda reiterated the BOJ’s readiness to ramp up stimulus further, he voiced hope robust exports and expected roll-outs of vaccines will brighten prospects for a recovery.

“I don’t think the risk of Japan sliding back into deflation is high,” he said, signalling the BOJ has offered sufficient stimulus for now to ease the blow from COVID-19.

NO EXIT EYED

Many analysts had expected the BOJ to hold fire ahead of a policy review in March, which aims to make its tools sustainable as Japan braces for a prolonged battle with COVID-19.

Sources have told Reuters the BOJ will discuss ways to scale back its massive purchases of exchange-traded funds (ETF) and loosen its grip on YCC to breathe life back into markets numbed by years of heavy-handed intervention.

Kuroda said the BOJ may look at such options at the review, but stressed a decision will depend on the findings of its scrutiny into the effects and costs of YCC.

He also made clear any steps the BOJ would take will not lead to a withdrawal of stimulus.

“It’s too early to exit from our massive monetary easing programme at this point,” Kuroda said. “Western economies have been deploying monetary easing steps for a decade, and none of them are mulling an exit now.”

(Reporting by Leika Kihara and Tetsushi Kajimoto; additional reporting by Kaori Kaneko; Editing by Simon Cameron-Moore & Shri Navaratnam)

WASHINGTON (Reuters) – The International Monetary Fund and the World Bank have agreed to hold their spring meetings, planned for April 5-11, online instead of in person due to continued concerns about the coronavirus pandemic, they said in joint statement.

The meetings usually bring some 10,000 government officials, journalists, business people and civil society representatives from across the world to a tightly-packed two-block area of Washington that houses their headquarters.

This will be the third of the institutions’ semiannual meetings to be held virtually due to the pandemic.

(Reporting by Andrea Shalal; Editing by Chris Rees

By William Schomberg and David Milliken

LONDON (Reuters) – Bank of England Governor Andrew Bailey said on Wednesday he expected Britain’s economy would recover strongly as the country moves ahead with vaccinating its population against COVID-19.

“I really do think that we are going to see a pronounced recovery in the economy as the vaccination programme, as it is doing now, rolls out,” Bailey said.

Britain has suffered the highest death roll in Europe from COVID-19 and its economy shrank by the most among the world’s industrial powerhouses during the first half of 2020.

But Britain has also now vaccinated more people against COVID-19 than almost any other country, raising hopes of a recovery once the government begins to ease restrictions.

Bailey’s comments in a BoE online event for the public came a day after the central bank’s Chief Economist Andy Haldane said he expected the economy to begin to recover “at a rate of knots” from the second quarter.

The BoE is due to publish new growth forecasts on Feb. 4 alongside a report on the feasibility of cutting interest rates below zero to boost growth, as has been done already in the euro zone and Japan.

Bailey again played down expectations that the central bank would make a swift move on this issue.

“We have not taken any decision, in fact we’ve not actually discussed whether or not to introduce negative rates,” Bailey said. International evidence to date suggested negative interest rates were only effective in specific circumstances, he added.

When rates were close to zero, and in particular when they were negative, the ability of monetary policy to influence the economy was much less clear. “We do not know, with any confidence, how that would work,” Bailey said.

Most economists polled by Reuters expect the BoE to leave rates steady at 0.1% until 2024.

Bailey said the impact of lockdowns on Britain’s economy seemed to be diminishing, but the current one would still deliver a big blow.

The share of retail sales that had moved online rose sharply in 2020 as consumers and businesses adjusted to social distancing rules, he said.

“We’re expecting however, obviously, quite a pronounced effect in the first quarter because this lockdown is obviously again necessarily a severe one,” Bailey said.

(Editing by Alexandra Hudson and Mark Heinrich)