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BOJ Governor Ueda Promises Low Rates, Hints at Possible Future Increase

Bank of Japan (BOJ) Governor Kazuo Ueda emphasized the necessity to keep monetary policy ultra-loose. However, he also hinted at raising interest rates if inflation and wage growth exceed expectations.

Kazuo Ueda
Kazuo Ueda

Ueda Supports Yield Curve Control

Ueda told parliament that maintaining monetary easing through yield curve control is appropriate given current economic, price, and financial developments. He also noted that Japan's bond yield curve has normalized partly due to falling global yields.

Commitment to a 2% Inflation Target

The BOJ Governor reiterated the importance of keeping Japan's monetary policy loose to achieve a sustainable 2% inflation target, accompanied by wage increases. He stated that the BOJ is ready to respond by raising interest rates if wage growth and inflation accelerate faster than anticipated.

Upcoming BOJ Policy Meeting

Ueda's comments come before the BOJ's two-day policy meeting starting on Thursday, his first since taking office earlier this month. The BOJ is expected to maintain its monetary settings and dovish policy guidance to support a fragile economic recovery and emerging signs of wage growth.

Speculations About Ueda's Approach

Market participants speculate that Ueda may guide the BOJ towards gradually ending the massive stimulus implemented by his predecessor, Haruhiko Kuroda. This stimulus has been criticized for distorting market pricing and negatively impacting financial institutions' profits.

No Rush to Raise Interest Rates

Ueda warned that tightening monetary policy now could lead to lower future inflation, which is expected to slow as import costs peak. He expressed concern about inflation falling further below expectations.

Risk of Inflation Undershooting Forecasts

The BOJ Governor emphasized the need to consider the long time it takes for changes in monetary settings to affect demand and prices. He believes the risk of inflation falling short of forecasts exceeds overshooting, highlighting the need to maintain the BOJ's extensive stimulus for now.

BOJ's Yield Curve Control Policy

Under yield curve control (YCC), the BOJ directs short-term rates at -0.1% and the 10-year bond yield around 0%, with an implicit cap set at 0.5%.