Bank of Japan board member Seiji Adachi
- Changing monetary policy frequently to stablise fx moves would lead
to big changes in rate moves - If interest rate
moves are too big, that would cause disruptions in household and
corporate investment - Responding to
short-term fx moves with monetary policy would affect price stability - If excessive yen
falls are prolonged and expected to affect achievement of our price
target, responding with monetary policy becomes an option - It is possible to
consider responding with monetary policy if fx moves cause big
changes in inflation expectations - Japan’s economy is
recovering moderately, although there are some weak signs - Consumption holding
steady as a whole mainly for service spending - Japan’s economy not
slumping but not in strong shape either with various uncertainties
remaining - BOJ must maintain
accommodative financial conditions until price goal achieved
-
We are not yet at stage where we are convinced that there is
sustained achievement of price target, so must maintain accommodative
conditions - We must absolutely
avoid raising interest rates prematurely - If we focus too much
on downside risks, inflation may accelerate and might force us to
tighten monetary rapidly as a result
-
By fixing interest rates at current zero levels until inflation is
durably at our price target, we might be forced to hike rates rapidly
later and therefore risk hurting economy - We must look not
just at downside but upside risks in guiding monetary policy - Important to adjust
degree of monetary support in several stages, as long as underlying
inflation continues to head toward 2%
-
Desirable to reduce BOJ’s bond buying in several stages, taking into
account bond market supply and demand, function, liquidity - Reducing BOJ’s JGB bond buying at a sharp pace could cause damage to economy
- Consumer inflation
slowing now but likely to re-accelerate from summer through autumn
this year - If yen declines
accelerate or become prolonged, inflation could re-accelerate faster
than expected and may require boj to quicken interest rate hike
I don’t want to say Adachi sounds hawkish, no one at the BOJ is hawkish, but he is sounding quite forthright with reasons to keep on tightening, albeit at a slow measured pace.
more to come
This article was written by Eamonn Sheridan at www.forexlive.com. Source