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Abstract:The Bank of Japan on Thursday doubled down on its commitment to maintain its massive stimulus programme and a pledge to keep interest rates ultra-low, triggering a fresh sell-off in the yen and sending government bonds rallying.
Reinforcing its resolve to support a fragile economy even as sharp rises in raw material costs push up inflation, the BOJ also said it will offer to buy unlimited amounts of 10-year government bonds to defend an implicit 0.25% cap around its zero target every market day.
The BOJ‘s commitment to its zero-rate programme puts it at odds with major economies that are shifting towards tighter monetary policy, although inflation in Japan is expected to creep up towards the central bank’s 2% target.
Following are excerpts from BOJ Governor Haruhiko Kurodas comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
THE YENS DECLINE
“Its desirable for currencies to move stably in a way that reflects economic fundamentals. The kind of rapid moves seen in a short period of time heightens uncertainty for companies and makes it difficult for them to set business plans.”
“We haven‘t changed our view that a weak yen is positive for Japan’s economy as a whole. But its also true that excessive currency volatility would heighten uncertainty for companies … and would be unfavourable for the economy.”
PRICE OUTLOOK AND MONETARY POLICY
“When excluding energy and volatile food prices, consumer inflation will likely gradually accelerate and hit 1.5% in fiscal 2024. But that‘s still below our 2% target. When including energy, our core consumer inflation forecast is for a 1.1% gain in fiscal 2024. I don’t think well see a stage where we can seek an exit from our easy monetary policy.”
“Inflation, driven by cost-push alone, won‘t be sustainable. Rather, we need to see an economic recovery expand the output gap, boost consumption and capital expenditure, and lead to a moderate increase in trend inflation … We’re not seeing conditions fall in place now for that to happen. The kind of increase in short-term inflation expectations we‘re seeing now won’t be sustained. A positive economic cycle needs to kick in for the heightening of inflation expectations to be sustained. It will take time for this to happen.”
DECISION TO OFFER UNLIMITED BOND-BUYING AT 0.25% ON A DAILY BASIS
“We decided to clarify our stance on our operation because there were some market players who tried to gauge the outlook for monetary policy by looking at our market operations. We needed to dispel such market speculation and clear up uncertainty over our policy stance.”
“I dont think our fixed-rate, unlimited bond-buying operation is causing big swings in the currency market. Rather, it helps to stabilise markets by avoiding moves from becoming too sharp.”
“What we want to avoid is for Japanese long-term interest rates to move above 0.25% because that‘s inappropriate. We’ll buy government bonds as needed for this purpose. We want to prevent Japan‘s long-term interest rates from rising in line with overseas bond yield increases. It’s not as if we want to reduce our bond-buying.”
WHETHER THERE WAS A GAP BETWEEN BOJ AND GOVT ON ADDRESSING RISING INFLATION
“There is no gap. Recent price rises have been driven by global commodity inflation, which hurts the economy because Japan is a commodity-importing country. There‘s no gap in the understanding between the BOJ and the government. It’s important to support the economy. As such, we will patiently continue with our easy monetary policy … The policies of the government and the BOJ dont conflict. Rather they are mutually reinforcing.”
WHETHER TODAYS DECISION WORKS TO WEAKEN THE YEN
“We don‘t see today’s decision triggering further falls in the yen. Our decision was purely aimed at dispelling market speculation over our monetary easing stance. It‘s desirable for currency rates to move stably that reflect economic fundamentals, and excess volatility could hurt the economy. This is the same view as that’s voiced by finance minister (Shunichi) Suzuki.”
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