Dear clients,
Bank of Japan Governor Kazuo Ueda on Tuesday stressed the need to maintain a super-loose monetary policy for the time being, but pointed to the possibility of raising interest rates if inflation and wage growth exceed expectations.
“In light of the current economic, price and financial developments, it is appropriate to maintain monetary easing, which is currently being implemented through yield curve control,” Ueda told parliament.
The shape of the Japanese bond yield curve has normalized in part due to falling global yields, Ueda said in response to an opposition lawmaker’s question about the drawbacks of prolonged monetary easing.
Ueda reiterated the need to maintain Japan’s monetary easing in order to achieve the Bank of Japan’s 2% inflation target in a sustainable and stable manner, accompanied by wage increases.
“But if wage growth and inflation accelerate faster than expected and require monetary tightening, the Bank of Japan is ready to respond, for example by raising interest rates,” the governor said.
Ueda’s comments come ahead of a two-day BOJ policy meeting starting Thursday, the first meeting he has chaired since he took over the bank earlier this month.
Markets are full of speculation that Ueda will direct the Bank of Japan to phase out his predecessor Haruhiko Kuroda’s massive stimulus that has drawn criticism for distorting market prices and hurting financial institutions‘ profits.
In a sign that he’s in no rush to raise rates, Ueda said tightening monetary policy now could push down future inflation, which is already slowing amid peak import costs.
