BOJ Deputy Governor Uchida: Japan needs to maintain easy policy

BOJ Deputy Governor Uchida:

  • At present, risk of
    losing chance to hit price target with premature shift from easy
    policy is bigger than risk of being too late in tightening
  • Japan is now at a
    phase where it’s important to patiently maintain easy policy
  • There is still quite
    a long distance before conditions fall in place to raise short-term
    rate target
  • BOJ will maintain policy framework as we have yet to see inflation
    sustainably, stably hit price target
  • Every policy has
    cost, there is no free lunch
  • As we control
    interest rates, the impact on market function is unavoidable
  • When inflation
    expectations heighten, the effect of monetary stimulus increases but
    so do the side-effects so we need to adjust both factors
  • BOJ will offer to
    buy unlimited amount of bonds at 1.0% in fixed-rate operation to
    contain interest rate rises
  • When the 10-year bond yield is moving between 0.5% and 1.0%, we will
    adjust amount of bond buying, use various operation tools to curb
    excessive yield rise in accordance to level, pace of moves in
    long-term rates
  • Unlike in December
    last year, there is no clear side-effect, distortion in shape of
    yield curve
  • There is high
    uncertainty over economic, price outlook both upside and downside
  • Inflation expectations showing signs of re-accelerating

  • If
    inflation expectations continue to heighten, rigidly capping 10-year
    JGB yield at 0.5% would cause bond market distortion, affect market
    volatility including for exchange rates

  • Last week’s decision was a pre-emptive step aimed at continuing
    monetary easing without disruptions

  • Timing for reviewing YCC
    would depend on conditions at the time, as responding after problems
    erupt would make it difficult to fix the problems

  • BOJ’s decision to make YCC more flexible is aimed at maintaining easy
    policy, not something with eye on exit from easy policy

  • BOJ must fine-tune YCC at times, make the framework flexible, to
    ensure it can patiently sustain easy policy

  • Will scrutinise
    whether wages will rise sufficiently and underpin consumption, and
    whether wage hikes will become embedded in Japan’s society next year
    and beyond

  • We are seeing some signs of change in corporate wage, price-setting
  • Even if inflation
    overshoots, chance of wages rising sharply and triggering further
    price rises is not big

Uchida with some clear words on last week’s decision from the BOJ. Keeping options open on YCC between 0.5 and 1%.

This article was written by Eamonn Sheridan at Source