Saturday, June 3, 2023
HomeEconomyAnalysis - New BOJ governor's message to the world: We stay the...

Analysis – New BOJ governor's message to the world: We stay the course – for now

By Leika Kihara

WASHINGTON (Reuters) – Japan’s new central bank governor Kazuo Ueda has a clear message to policymakers gathered here for a global financial conference last week: Japan is still There would be an exception to the dovishness of keeping interest rates ultra-low – at least for now.

Since taking office a week ago, Ueda has hinted that his dovish predecessor Haruhiko Kuroda’s massive stimulus plan will eventually be phased in

But there is no question of when and how Talk of moving away from ultra-loose policy will take time, giving Ueda good reason to reassure the world that any change won’t happen anytime soon.

“In many countries, inflation is either very high or not slowing down enough. The important thing is that the situation in Japan is completely different, and I explained this at the meeting,” Ueda said at a financial conference on Wednesday. The leaders told reporters after the meeting of the Group of Seven advanced economies meeting, which is being held concurrently with the spring meetings of the IMF and World Bank.

Inflation in Japan, now around 3%, will ease back below the Bank of Japan’s 2% target later this year, as import costs fall, Ueda said on Thursday in a larger Bloc ministers explain his plans to keep monetary policy ultra-loose for now.

The dovish comments likely underscored the Bank of Japan’s desire to avoid a repeat of January’s mistakes, when expectations for a quicker shift to tweaking its yield curve control (YCC) policy pushed long-term interest rate.

Under YCC, BOJ guides short-term rates to -0.1% and -year JGB yields near zero , with an implied upper limit of 0.5%. Speculation is rife that Ueda will adjust the YCC this year as inflation exceeds the BOJ’s target and the cost of long-term easing increases.

The annual yield is currently slightly below the cap of 0.28% but earlier this year Traders have repeatedly pushed it above 0.5%, forcing the BOJ to defend the level.

Graph: Defending Japan’s Yield Cap (

Range of adjustments this year

Ueda to chair his first BOJ policy meeting in April27-28, at which time the board will issue new quarterly growth and inflation forecasts, which will be closely watched to see how long the central bank expects inflation to continue reaching its 2% target signs.

Uncertainty in the world economy was underscored by the International Monetary Fund’s stark warning on the risk of a global recession on Tuesday, adding to the case for Ueda’s slow and cautious move.

However, analysts said Ueda’s comments left room for change at YCC, which has been criticized for distorting the shape of the JGB yield curve and pushing down financial institutions’ profit margins.

While stressing that the Bank of Japan’s focus now should be on avoiding a premature exit, Ueda said on Wednesday that he would not deny the risk of being behind the curve in addressing excessive inflation. The BOJ must make a “pre-emptive” decision on the timing of policy normalization, as waiting too long could make the adjustment disruptive.

“We will discuss all options at each policy meeting,” Ueda said on Monday when asked about the possibility of tweaking the BOJ’s guidance on its pledge to keep interest rates ultra-low.

On the timing of policy adjustments,” said Nobuyasu Atago, a former BOJ official and now an analyst at Ichiyoshi Securities.

“But they are not entirely ruling out a near-term adjustment either possibility to YCC,” he said.

Graph: Japan Inflation ( chart.png)

Supply shocks, trade-offs

Global debate on costs of delayed monetary tightening intensifies, may challenge BOJ view , that near-term cost-driven inflation will prove transitory.

Central banks can focus on demand and assume elastic supply and given The days may be over.

“We are in an economy that will be hit more by supply shocks and monetary policy will face more severe trade-offs,” she said on Friday.

IMF Do Something Recommendation to Ueda: loosen BOJ controls and allow more flexibility to rise long-term rates – a move that would help ease pressure on banks.

Ranil Salgado, head of the IMF’s delegation to Japan, sees room for the Bank of Japan to revise its long-term yield target this year as prospects for durable wage growth strengthen.

As long as short-term Keeping interest rates at zero or slightly negative could keep monetary policy accommodative even if the BOJ adjusts its yield target, he said.

“We suggest (the BOJ) is almost already considering this issue, ’” Salgado said of the idea of ​​tweaking the YCC.



Please enter your comment!
Please enter your name here


Featured NEWS