BoJ’s Noguchi: Focus now is on the pace at which the policy rate will be adjusted


Bank of Japan (BoJ) board member Asahi Noguchi said on Thursday that the “focus now is on the pace at which the policy rate will be adjusted and at what level it will eventually stabilize.”

Additional quotes

Essential for BoJ to maintain ultra-loose monetary policy, seek balance in labour supply and demand.

Japan is seeing wage hikes unseen in the past via spring wage negotiations.

Essential to continue to maintain appropriate balance between labour supply and demand through the continuation of its accommodative monetary policy to achieve the 2% price target.

Japan must achieve positive wage-inflation cycle as soon as possible and for this, service prices must keep rising.

Last year's spring labour-management negotiations have triggered an unprecedented wave of wage increases.

Another factor that is key is for small manufacturers to be able to smoothly pass on rising wage costs to prices.

If wage hike translates into higher prices, that will show through rise in service prices and this trend is clearly appearing.

Long-term neutral interest rate is highly likely to be lower than that of other countries.

At some point in future, it's desirable to start shrinking BoJ’s balance sheet.

Steps BoJ decided in March is a move toward this direction of future shrinking of BoJ's balance sheet.

I dissented to BoJ’s March decision since I thought it would be appropriate to maintain JGB buying under negative rate.

Rise in service prices not driven mainly by wage hikes yet.

Japan's economy in moderate recovery trend but growth stalling recently.

Market reaction

USD/JPY keeps lows near 154.20 following these mixed comments, losing 0.09% on a daily basis.

Bank of Japan FAQs

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%.

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.

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.

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.

 

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