Bank of Japan (BoJ) Governor Kazuo Ueda spoke in the Japanese parliament on Tuesday. Ueda warned of the potential need for policy response due to foreign exchange impacts and he will closely monitor recent currency fluctuations.
Key quotes
“Monetary policy is aimed at impacting inflation, not the yen rate.”
“Will examine the impact of the movement of the yen on the economy.”
“FX moves could have a big impact on the economy and prices, and so the impact of FX volatility could be bigger than in the past.”
“BoJ does not seek to directly control FX rates with monetary policy.”
“FX moves are among various factors that affect the economy and prices.”
“Weak yen pushes up import costs, has an impact on the economy in other ways, such as via demand.”
“To adjust easing as per rising price trend.”
The Bank of Japan may need to respond via monetary policy if such impact for yen moves affects trend inflation.”
“We expect trend inflation to gradually head towards 2%.”“We will adjust monetary policy as appropriate if trend inflation heads toward 2% as we project, or if we see the risk of inflation overshooting our forecast.”
"Don't see yen moves as having a big impact on trend inflation so far, but there is risk that the impact could become significant in the future."
"BoJ won't necessarily wait until inflation achieves our forecasts in 1.5 to 2 years to raise interest rates."
"If trend inflation moves as we project, we will adjust the degree of monetary support accordingly."
"Inflationary pressure driven by a positive wage-price cycle is strengthening."
Market reaction
At the time of writing, USD/JPY is trading 0.05% higher on the day to trade at 154.77.
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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