BOJ Kuroda said widening of YCC JGB band was “definitely not a step towards an exit”

Bank of Japan Governor Kuroda spoke on Monday in a speech delivered to the business lobby Keidanren.

The full text is here at the BOJ website:

• Speech by Governor KURODA at the Meeting of Councillors of Keidanren (Toward Achieving the Price Stability Target in a Sustainable and Stable Manner, Accompanied by Wage Increases)

Kuroda’s key remarks once again reiterated his view that ultra-easy monetary policy would be sustained. Kuroda said that the widening of the tolerance band within which the 10-year JGB would be allowed to fluctuate, to +/-0.5% from +/- 0.25% previously, was aimed at improving market function.

• “This is definitely not a step towards an exit”
• the BOJ will maintain “utmost support” for the economy by keeping accommodative financial conditions in place.
• “The bank will aim to achieve the price stability target in a sustainable and stable manner, accompanied by wage increases, by continuing with monetary easing under the framework of yield curve control.”

Kuroda did flag that he expected conditions to come into place for sustained, stable inflation .

• “Labour market conditions in Japan are projected to tighten further and firms’ price- and wage-setting behaviour is also likely to change.”
• “We are approaching a critical juncture in breaking out of the prolonged period of low inflation and low growth since the collapse of the bubble economy.”

Sustained, stable inflation at 2% or above would allow the BOJ to take steps to dialling back its ultra-easy policy. But, not yet!

Kuroda did not guide as the when he expected this. He did, however, once again say that over the course of the new fiscal year, which begins in April 2023, Japan's core consumer inflation is likely going to average less than 2%.

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Separately on Monday, Prime Minister Kishida raised the likelihood of a revision to the government’s agreement with the BOJ on Monday after a new BOJ governor is appointed. The change would water down the commitment to the BOJ hitting the 2% inflation target at the earliest date possible.

• "It's something for after the new BOJ governor is decided."

This is in reference to (from December 19):

• Japan's government is set to revise a decade-old joint statement with the Bank of Japan (BOJ) that commits the central bank to achieve its 2% inflation "at the earliest date possible," Kyodo news agency reported

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Also on Monday was data from Japan.

The Services PPI for November was 1.7% y/y

• vs expected 1.7% and the prior of 1.8%

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Forex markets are either mainly shut for the holiday or trading only very thin liquidity indeed. In Asia on Monday Japan was the only major forex centre open. Tuesday it'll be Japan and Singapore only. Very thin liquidity will once again be something to be careful of.

USD/JPY update: