BoJ’s Takata – BOJ is currently only pausing its policy rate hike cycle

Forex Short News

Full text of the speech from Bank of Japan policy board member Takata:

Headlines via Reuters:

  • BOJ should continue to further adjust degree of monetary accommodation if it can confirm that positive corporate behaviour is being maintained
  • But with likelihood of slowdown in U.S. economy due to tariffs, careful monitoring needed on risk that divergence in U.S.-Japan monetary policy stance could bring about high market volatility, particularly in FX markets
  • U.S. economy is unlikely to see a serious recession
  • BOJ is currently only pausing its policy rate hike cycle, should continue to make ‘gear shift’ after certain period of ‘wait and see’
  • There is persistent speculation of a rebound in U.S. inflation due to the imposition of reciprocal tariffs
  • Given that uncertainties regarding various U.S. policies remain high, I believe BOJ should conduct monetary policy in a more flexible manner without being too pessimistic
  • This is because BOJ may need to nimbly shift back to rate hike cycle in response to policy changes in the United States, in additional to taking action in case downward pressure on economy increases
  • To maintain momentum toward hitting its price target, BoJ also needs to maintain its current accommodative monetary policy stance
  • A rise in the risk premium on super-long-term JGBs tends to induce a deterioration in market functioning, with volatility spilling over to the entire yield curve
  • It should be noted that such rise in risk premium on super-long JGBs, yield curve volatility, may unintentionally give rise to the risk of monetary tightening effects transmitting widely across the market
  • The impact of U.S. tariff policy will likely push down Japan’s economy through such channels as a slowdown in overseas economies, a decline in domestic corporate profits, and an associated slowdown in wage increases.
  • Japan’s corporate profits have remained on an improving trend recently.
  • Consumption likely to continue increasing moderately.
  • Signs of home-made inflation have finally emerged in Japan.
  • I believe Japan’s economy is at a stage where BOJ’s price stability target is close to being achieved.
  • Will like to closely monitor whether the momentum toward achieving the price stability target, which has finally started to operate, will not be dampened by U.S. tariff policy.
  • I am paying particular attention to the possibility of significant market volatility, depending on the expectations for new U.S. trade policy
  • Want to scrutinise whether speculation over US policy could lead to strong yen, hurt Japan’s corporate profits
  • My view is that the BOJ needs to support economic activity for the time being by maintaining its current accommodative monetary policy stance

I bolded a few of the remarks:

  • wary of a strong yen
  • BOJ on hold for now supporting the economy
  • In ‘wait and see’ mode for now

This article was written by Eamonn Sheridan at www.forexlive.com.