BoJ's Ueda: Judged appropriate to adjust degree of easing
Speaking at the post-policy meeting press conference on Wednesday, Bank of Japan (BoJ) Governor Kazuo Ueda said that the Bank “judged appropriate to adjust the degree of easing from the perspective of sustainable, stable achievement of 2% inflation.”
The BoJ raised the benchmark interest rate by 15 bps to 0.15%-0.25% after holding rates for two consecutive meetings.
Additional quotes
Japan's economy is recovering moderately.
Must pay due attention to financial, FX markets, impact on Japan's economy, prices.
Upside risks to prices require attention.
Long-term yields should be formed in financial markets in principle.
Appropriate to taper JGB buying in predictable manner while ensuring market stability by allowing flexibility.
Will respond nimbly if there's sharp rise in long-term yields by increasing purchases, conducting fixed-rate operations.
Will keep raising rates, adjust degree of easing if current economic, price outlook will be realized.
Views received at bond market group meeting reflected in our tapering plans.
Private consumption remains solid despite inflation impacts seen.
Confirmed that wage hikes becoming widespread.
Rising wages, income will continue to support private consumption.
Some market participants at July meeting expressed concerns about outlook.
Momentum for wage growth is spreading at small and medium companies.
Import prices starting to pick up gain, attention needs to be paid.
Prices are getting to be more affected by foreign exchange swings compared to the past.
Although not especially strong, private consumption is deemed solid.
Judged spring pay negotiations' result firmly reflected, looking at april-may wages data.
Don't believe this rate hike will have significant negative impact on economy.
Will closely share basic view on economy, prices with govt.
Don't have 0.5% policy rate in mind.
In our estimate, size of BoJ balance sheet will be 7-8% smaller in about two years but still bigger than desirable levels in long-term.
Will check impact of rate hikes up until this point when considering additional rate hike.
Don't believe economy, prices will slow down due to additional rate hike.
There are positive aspects of raising rates now to avoid sudden hikes in future.
No change to our view that neutral rate of interest has large uncertainties.
But as of now Japan's rates are far below the uncertain levels of neutral rate.
We have just shifted our stance to use short-term rates as main policy tool as we no longer need massive easing.
Weak Yen didn't have much impact on our price outlook.
But we made policy response this time, consering upward risks to prices are considerably large.
Hard to comment on FX impact of stronger Yen on economy, prices.
Whether strong Yen impact is same or smaller than that of weak Yen is 'interesting matter'.
Weak Yen did not move our central price outlook but we recognised it as important risk that could move the outlook.
The latest interest rate hike could move up short-term prime rates and subsequently housing loan interest rates too.
Wage growth is expected to precede interest rate payments for housing loans so burden on homeowners will lessen.
Interest rate hikes have negative impact on households with debt while having positive impact on those with deposits.
Hard to tell when the next rate hike may be.
Market reaction
USD/JPY is little changed following these comments. The pair was last seen trading flat on the day at 152.75.
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. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
