Bank of Japan Targets 2% Inflation During Ueda's Term

The Bank of Japan, led by its new Governor Kazuo Ueda, said the central bank should keep interest rates lower to support the slumping economy, and warned of the dangers of cost-driven inflation with monetary tightening. This time we summarize the information based on a report from the investing.com page.

 While signaling the possibility of changing the BOJ’s yield curve control (YCC) in the future, Ueda said that while the bank needs to determine the right time and means to do so, the new chief is in no rush to overhaul. BOJ Governor Ueda told lawmakers that the recent rise in inflation was driven largely by stiffer import costs, rather than stronger demand. Global Treasury yields fell while Japanese stocks rose as Ueda’s tone and policy continuity dampened some market expectations that he might seek to quickly exit his previous extreme monetary rut of dovishness. “It is standard practice to act first against demand-driven inflation, but not immediately to respond to supply-driven inflation,” Ueda said. “The prevailing inflation trend in Japan is likely to gradually increase. However, it will take time for inflation to reach the desired target of around 2 percent,” Ueda added. “It is true that there are side effects, but the current BOJ policy is a necessary and appropriate way to achieve the 2% inflation target.” The yen has been volatile, swinging between gains and losses against the U.S. dollar as investors parsed Ueda’s comments. The yen was last down about 0.03% at 134.76 per dollar. Earlier this month, the government named Ueda as its pick to be the next Bank of Japan governor in a surprise choice that was initially seen by markets as an opportunity to end the BOJ’s unpopular yield policy. With inflation running above the BOJ’s target, Ueda will face the daunting task of phasing out YCC, which has been criticized by the public for distorting market functions and destroying bank margins. However, Ueda said for now that the BOJ needs to monitor whether the December move, which appeared to widen the band around the yield target, would help ease the side effects. “Overall, Ueda is working hard to present himself as a continuationist, at least to start with,” said Westpac senior currency strategist Sean Callow. “Now is not the time to put his own stamp on policy, the government didn’t pick him for that reason,” he added. The upper house of parliament will hold a confirmation hearing for Ueda on Monday, with the two deputies due to meet on Tuesday. Under the YCC, the BoJ will guide short-term interest rates at -0.1% and 10-year yields around 0% as part of its drive to meet its 2% inflation target. Facing pressure from rising global interest rates, the Bank of Japan was forced to raise its implicit band for the 10-year yield target in December to 0.5% from 0.25%. A move that has fuelled market expectations of an imminent change in the Bank of Japan (YCC) yield.

Also read :

Warning !

This analysis is based on fundamental and technical views from trusted sources, not advice or invitation. Always remember that this content is intended to enrich the reader's information. Always use independent research first regarding other forex information to be used as a reference in your trading.