BOJ's Ueda: Price expectations must be around 2% for price target
The Bank of Japan (BoJ) Governor Kazuo Ueda said on Thursday that inflation expectations are gradually rising but yet to reach 2%, adding that the Japanese central bank will move cautiously on interest rates to avoid any big mistakes.
Key quotes
Inflation expectations remain below 2%.
Proceeding cautiously on interest rates.
Uncertainties surround measuring neutral rate.
Reduce bond buying during exit.
To check financial market conditions post-March shift.
Market reaction
At the time of writing, USD/JPY is trading 0.09% lower on the day to trade at 156.82.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.