BOJ’s Ueda: Prospect of achieving price target not high enough
The Bank of Japan (BoJ) Governor Kazuo Ueda spoke on Monday at the Japan Business Federation meeting. Ueda said that the possibility of achieving the central bank's inflation target was gradually rising, and it would consider adjusting policy if prospects of sustainably achieving the 2% target increased sufficiently.
Key quotes
“Service prices gradually accelerating pace of increase, though it seems many firms feel it is not easy to pass on rising labour costs.”
“If positive wage-inflation cycle strengthens, and heightens prospects of sustainably achieving price target sufficiently, we will consider changing monetary policy.”
“We can not pre-set timing of future policy change, but will like to make an appropriate decision while scrutinizing economic developments, firms' wage and price-setting behaviour.”
“In an economy where positive inflation is sustained, nominal rates will be high and give central bank scope to cut interest rates sharply when necessary.”
“When monetary policy functions effectively, that means the risk of economy worsening sharply or returning to deflation will diminish.”
“BOJ patiently maintaining monetary easing to ensure signs of change in firms' wage, price-setting behavior is sustained.”
“BOJ will carefully examine economic developments, including whether positive wage-inflation cycle will strengthen, and make an appropriate decision towards sustainably hitting price target.”
“It may take some time but upward pressure from past rises in import prices will likely gradually ease.”
"We will carefully examine economic developments as well as firms' wage- and price-setting behavior, and thereby decide on future monetary policy in an appropriate manner,”
Market reaction
At the time of writing, the USD/JPY pair is trading around 142.32, down 0.08% on the day.
Bank of Japan FAQs
What is the Bank of Japan?
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
What has been the Bank of Japan’s policy?
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
How do Bank of Japan’s decisions influence the Japanese Yen?
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
Is the Bank of Japan’s ultra-loose policy likely to change soon?
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.