Kazuo Ueda, the Governor of the Bank of Japan (BoJ), reiterated the central bank's commitment to maintaining its ultra-loose monetary policy, including negative interest rates and yield curve control, until there is more confidence in achieving their 2% inflation target. He noted an increase in active price lifts and wage hikes by companies, which he views as crucial steps towards sustainably reaching this target.
In a recent parliamentary session on November 9, Ueda exhibited a prudent outlook on Japan’s monetary policy, underscoring the requirement for sufficient evidence before instituting changes. He projected an inflation increase to nearly 2 percent and emphasized the need to scrutinize wage trends for a significant societal increase.
Ueda also conveyed to policymakers that he could not specify the sequence for discontinuing yield curve control and negative interest rates during policy normalization. Instead, he emphasized that this order would be contingent on the prevailing economic and price conditions when the central bank anticipates achieving their inflation goal.
However, at a meeting on Thursday, Oct 31, some policymakers at the Bank of Japan (BOJ) argued for a phased reduction of the decade-long accommodative regime and an exit from ultra-low interest rates. The BOJ held its ultra-low interest rate targets but eased the yield curve control (YCC) to mitigate its side-effects and relax its hold on long-term rates. This indicates a shift towards normalising monetary policy.
Since July, a board member highlighted an increased chance of sustainably achieving the BOJ's price target. This signaled a need for a gradual decline from its maximum level of easing. The October meeting saw a sharp upgrade in inflation forecasts, suggesting conditions for phasing out stimulus are aligning. Governor Ueda credited this sharp upgrade in inflation forecasts largely to cost-push factors, alongside broad corporate price increases and steady service cost increases.
The Summary of Opinions post October's meeting disclosed a member's positive anticipation about wage trends, forecasting an uptick in base pay negotiations next year, indicating proximity to BoJ’s price target achievement. Another member suggested tapering monetary easing and regarded yield control adjustments as groundwork for future policy normalization.
Looking ahead to Fiscal 2023, wage growth in next year's base pay negotiations is expected to exceed this year's, edging closer to achieving the BOJ's price target. This reflects broadening corporate price increases and steady rises in service costs.
The Governor underscored that the cessation of these measures will depend on the economic and financial landscape at the time. The central bank continues to commit to its current strategies of negative rates and the yield curve control framework until such a projection becomes feasible.
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