BoJ’s Ueda: Trend inflation heightening, will make appropriate policy decision

Bank of Japan (BoJ) Governor Kazuo Ueda said on Thursday that “Japan's trend inflation heightening, will make appropriate monetary policy decision.”

Additional quotes

Service prices continue to rise moderately.

Expect positive cycle to strengthen in which tight labor market leads to higher wages, household income.

Desirable for FX to move stably reflecting fundamentals.

Won't comment on FX levels.

FX rates move on various factors.

Desirable for FX to move stably reflecting fundamentals.

A 1% rise in interest rates will lead to 40 trln yen worth of valuation loss on BoJ’s JGB holdings.

Market reaction

USD/JPY was last seen trading at 150.31, almost unchanged on the day.

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

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.

How do Bank of Japan’s decisions influence the Japanese Yen?

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.

Is the Bank of Japan’s ultra-loose policy likely to change soon?

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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