BoJ’s Koeda: Core inflation is already near 2%

Bank of Japan (BoJ) Policy Board Member Junko Koeda said on Thursday that Japan's core inflation rate has approached 2%. Koeda also highlighted the progress towards achieving the BoJ's inflation goal, which has been a key focus for policymakers in recent years.

Key quotes

Underlying inflation is already around 2%.
BoJ needs to continue to raise the policy interest rate in response to developments in economic activity and prices as well as financial conditions.
Developments over the past month or two may have increased the likelihood of a risk scenario in which high crude oil prices persist.
Considering such supply and demand contexts, prices could continue to increase across a wider range of items down the road.
Given the situation in the Middle East, I see some possibility that underlying inflation may exceed 2% looking ahead.
Both survey- and market-based indicators of long-term inflation expectations have already increased slightly, which warrants attention.
It is reasonable for boj to raise the policy interest rate at an appropriate pace to address high inflation while also considering the trade-offs for the economy.
BoJ needs to continue examining the extent to which underlying inflation is anchored.
If real interest rates continue to deviate markedly in a negative direction from the natural rate of interest, unintended distortions could arise in future resource allocation.
Short-term real interest rates will fall further if the BoJ does not change its policy interest rate in response to a rise in inflation or inflation expectations.
BoJ's decision on how to address issues surrounding policy normalization will depend on factors such as the size of the output gap and the stability of the natural rate of interest.
If economy does not see a major downturn, more attention needs to be paid to the side effects of a further decline in real interest rates.
BoJ should proceed steadily with normalizing its balance sheet in a predictable manner, while ensuring flexibility.
BoJ's JGB holdings are expected to decline moderately, as the amount of bonds redeemed exceeds the amount purchased.
When considering long-term balance between redemption and purchase, important to comprehensively assess factors such as the situation in the jgb market and issue of liquidity, including reserve balances.
BoJ must assess how long present situation in the Middle East will last, its impact on global economy and external demand and how Japan's net exports will change in light of current FX levels.
Pace of price pass-through by firms seems to have accelerated compared with a few years ago.
Services prices, which had been declining until a few years ago, have recently been stably pushing up CPI due to sustained SOLID wage growth.
Short-term real interest rates have been negative and at low levels relative to other economies.
Prolonged period of negative long-term real interest rates may lead investors to view Japan's economy as an unattractive investment It is therefore desirable for real long-term interest rates to remain positive over the long run to maintain market health.
Some market players say market perception of fiscal policy has influenced formation of JGB yields.

Market reaction

At the press time, the USD/JPY pair is down 0.03% on the day to trade at 158.88.