BoJ’s Ueda: The chance of moving rates out of negative in 2024 is not zero
The Bank of Japan (BoJ) Governor Kazuo Ueda spoke with NHK on Wednesday that he was not in a rush to unwind the central bank's ultra-loose monetary policy, noting that the risk of inflation exceeding 2% and rising further was minimal.
Key quotes
"For now, I don't think the chance of this happening is large”
“It will require substantial time before the data of all smaller firms will become available.”
“Not quite convinced yet that Japan can foresee inflation sustainably achieving the BOJ's 2% target.”
“The chance of moving short-term interest rates out of negative territory next year "was not zero”.”
“Key factor would be whether wage hikes will broaden to smaller firms in 2024's annual spring wage negotiations, but the BOJ could decide even before the smaller firms' wage talk outcome becomes available if their profits turn out to be very strong.”
Market reaction
The reaction was largely muted following Ueda’s comments. At the time of writing, the USD/JPY pair is trading around 141.29, down 0.38% 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.