(Reuters) – The Bank of Japan (BOJ) on Friday kept ultra-low interest rates but announced a broad review of its monetary policy, laying the groundwork for new Governor Kazuo Ueda to gradually phase out his predecessor’s massive stimulus programme.
Following are excerpts from the news conference, which was conducted in Japanese, as translated by Reuters:
HIGH UNCERTAINTY SURROUNDS OVERSEAS ECONOMY
“When looking at risks, uncertainty surrounding the overseas economy is extremely high given the war in Ukraine and commodity price developments. We must be vigilant to financial market moves and their impact on Japan’s economy.”
INFLATION RISK
“Uncertainty regarding domestic and overseas economic and market developments is extremely high. While trend inflation is gradually heightening, it will take some time to achieve our inflation target. As such, the risk of missing our price target with premature monetary tightening is bigger than the risk of experiencing inflation exceeding 2% due to a delayed tightening. The cost of waiting for trend inflation to heighten is low.”
MAINTAIN EASY POLICY FOR NOW
“Many board members believe that inflation will ease below 2% toward the latter half of this fiscal year, then bounce back after that. But the forecast of the rebound is based on various assumptions and bound with uncertainty. As such, I want to be patient here and maintain easy policy a bit longer.”
ON POLICY REVIEW
“We don’t have anything in mind in terms of tying this to a near-term policy tweak.
“We might do a nearing with academics … or use our regional branch networks, and exchange views with various people.”
“We’ve been conducting non-conventional monetary policy for 25 years. We’re seeing trend inflation gradually heightening. We might see inflation stably achieve our target. It’s good to be ready for in case things proceed as we hope, and when it doesn’t.”
CHANCE OF POLICY SHIFT BEFORE CONCLUSION OF REVIEW
“Yes. If we need to change policy due to changes in economic and price developments, we will do so. Inflation has yet to be seen stably achieving 2% now, but that could change in which case we could change policy.”
DEFINING TREND INFLATION
“There’s no single data we can use to determine trend inflation. One idea, however, is that our forecasts of inflation half year, one year and 1.5 years ahead would reflect our view of trend inflation … Our forecasts show that we’re getting quite close to achieving (our price target). But we’re not quite confident about our longer-term inflation forecast, so we need to discount that point.”
TO KEEP A VIGILANT STANCE
“It will take more time to achieve trend inflation (of 2%) so we will maintain current policy for now. But it’s true we’re seeing side-effects here and there. We need to closely scrutinize these developments. I’m not thinking of anything specific now. But we must avoid getting the balance of benefits and costs wrong, so will be vigilant and disclose information as much as possible.”
ON YCC
“When trend inflation heightens, real interest rates will fall and the effect of monetary easing as well as its side-effects will increase … That’s why we must meticulously monitor the side-effects of the policy.”
ON HOW LONG BOJ NEEDS TO CONCLUDE PRICE GOAL MET
“We don’t necessarily need to wait for next year’s wage negotiations (in deciding whether trend inflation will hit 2%). This year’s inflation and corporate profits will also be key, and could allow us to judge whether conditions are falling in place (for trend inflation to sustainably hit 2%).”
ON REMOVAL OF INTEREST RATE FORWARD GUIDANCE
“We have a commitment to maintain our interest rate targets under the YCC intact until trend inflation hits (or price target), so we’ll do what we can within that framework.”
THE REVIEW’S EFFECT ON BOJ DEBATE ON EXITING EASY POLICY
“The chance of us normalising monetary policy (before concluding the review) isn’t zero. In that case, the outcome of the review won’t be available in time to make use of its findings. We’re not doing this review for the sake of normalising policy, though.
“On the other hand, we could unfortunately see the timing of an exit get delayed and take two, three, or four more years. In that case, we need to think about how to mitigate the side-effects and make the current easy policy sustainable.”
ON THE TIMELINE OF POLICY REVIEW
“The term of myself and the two deputy governors is five years. So the idea is to do a review in time so that the finding can be used for our policy decisions later in our term.”
(Reporting by Leika Kihara; Editing by Sherry Jacob-Phillips)
