Bank of Japan cannot decide on inflation rate
2023.02.02 04:09
Bank of Japan cannot decide on inflation rate
By Kristina Sobol
Budrigannews.com – Masazumi Wakatabe, Deputy Governor of the Bank of Japan (BOJ), issued a cautionary statement on Thursday warning against lowering the bank’s inflation target of 2% because doing so would diminish the effects of the bank’s ultra-loose monetary policy.
Additionally, he stated that the central bank should exercise caution when making further adjustments to its policy of yield curve control (YCC), such as widening the band surrounding its 10-year bond yield target.
The BOJ should be able to raise interest rates more flexibly if a panel of academics and business leaders proposes making the inflation target a long-term goal rather than a short-term one.
Wakatabe, a vocal supporter of aggressive monetary easing, stated that lowering the inflation target could lead to the BOJ’s monetary policy’s goal becoming too vague.
He stated in a speech, “It could undermine the transparency of monetary policy and its effectiveness.” This is applicable to managing both inflation and deflation.”
Wakatabe also stated that the central bank’s commitment to maintaining ultra-loose policy had “absolutely no change.”
Markets are rife with speculation that the BOJ will begin raising interest rates when dovish incumbent Governor Haruhiko Kuroda’s term ends in April because inflation has exceeded its target of 2%.
The BOJ’s ultra-loose policy is being criticized by those who point to the rising costs of prolonged easing, such as market distortions brought on by the bank’s constant defense of its yield cap.
Wakatabe, whose term as deputy governor comes to an end in March, stated that an increasing number of businesses were increasing wages and raising prices.
He stated, however, that there was doubt as to whether such shifts in the price outlook would last and contribute to Japan’s sustainable achievement of the inflation target.
“The price outlook is susceptible to both positive and negative risks. “We must not let our guard down,” Wakatabe told a news conference following the speech, “in fact, downside risks remain fairly strong.”
In December, core consumer prices in Japan were 4.0% higher than a year earlier. This increase was twice as fast as the BOJ’s inflation target and kept market expectations that the central bank would soon end its stimulus program alive.
The BOJ surprised everyone in December by widening the allowance band around its 10-year yield target, which was attacked by investors who were betting on a quick rate hike. The 10-year bond yield can now rise to 0.5 percent, up from the previous limit of 0.25%.
Wakatabe stated that the BOJ essentially diminished the stimulus effect of its policy by allowing yields to rise more, despite the fact that the move in December was necessary to make YCC more sustainable.
“We shouldn’t sabotage the upgrade influence with strategy changes,” Wakatabe said, when found out if the BOJ could raise the cap once more, Wakatabe said.
“We should be extremely, cautious” in choosing whether to make further changes to YCC, he added.
