BOJ Deputy Governor Uchida:
- At present, risk of losing chance to hit price target with premature shift from easy policy is bigger than risk of being too late in tightening
- Japan is now at a phase where it's important to patiently maintain easy policy
- There is still quite a long distance before conditions fall in place to raise short-term rate target
- BOJ will maintain policy framework as we have yet to see inflation sustainably, stably hit price target
- Every policy has cost, there is no free lunch
- As we control interest rates, the impact on market function is unavoidable
- When inflation expectations heighten, the effect of monetary stimulus increases but so do the side-effects so we need to adjust both factors
- BOJ will offer to buy unlimited amount of bonds at 1.0% in fixed-rate operation to contain interest rate rises
- When the 10-year bond yield is moving between 0.5% and 1.0%, we will adjust amount of bond buying, use various operation tools to curb excessive yield rise in accordance to level, pace of moves in long-term rates
- Unlike in December last year, there is no clear side-effect, distortion in shape of yield curve
- There is high uncertainty over economic, price outlook both upside and downside
Inflation expectations showing signs of re-accelerating
If inflation expectations continue to heighten, rigidly capping 10-year JGB yield at 0.5% would cause bond market distortion, affect market volatility including for exchange rates
Last week's decision was a pre-emptive step aimed at continuing monetary easing without disruptions
Timing for reviewing YCC would depend on conditions at the time, as responding after problems erupt would make it difficult to fix the problems
BOJ’s decision to make YCC more flexible is aimed at maintaining easy policy, not something with eye on exit from easy policy
BOJ must fine-tune YCC at times, make the framework flexible, to ensure it can patiently sustain easy policy
Will scrutinise whether wages will rise sufficiently and underpin consumption, and whether wage hikes will become embedded in Japan's society next year and beyond
- We are seeing some signs of change in corporate wage, price-setting behaviour
- Even if inflation overshoots, chance of wages rising sharply and triggering further price rises is not big
Uchida with some clear words on last week's decision from the BOJ. Keeping options open on YCC between 0.5 and 1%.
