TOKYO (Reuters) – At a press conference after the monetary policy meeting on the 26th, Bank of Japan Governor Kazuo Ueda expressed caution over the development of the weak yen affecting the wage increase rate through price increases, and expressed concern about the possibility of next year’s spring labor union. He said that if the rate of wage increases is likely to be affected, a decision to raise interest rates could be made before the spring labor action. On the other hand, he said, if the Bank of Japan continues as expected in its outlook report, that alone could lead to a rate hike.
At the press conference, questions focused on the impact of the weaker yen on prices and policy responses. Governor Ueda explained that the recent depreciation of the yen was one of the factors that led to the upward revision of the price outlook for this fiscal year, but acknowledged that so far it has not had a major impact on the underlying inflation rate. Indicated.
He also stated that if the weaker yen were to have a non-negligible impact on the underlying trend of inflation, this would be a factor in monetary policy decisions. Normally, the impact of a weaker yen on the inflation rate would be temporary, but the weaker yen will affect this year’s inflation rate by increasing the expected inflation rate, leading to a rise in wages to the level of the 2025 spring labor labor movement. If this happens, the impact will be long-term.” “If the situation becomes such that we can predict such a move, we can make a decision (to raise interest rates) before that happens,” he said.
On the other hand, if the yen continues to depreciate, import prices will rise, and “Depending on the degree, there is a possibility that there will be a negative impact on consumption through downward pressure on real incomes.” At the moment, we expect that real income will improve as nominal wages increase while the impact of import price increases weakens, leading to strong consumption, but is it clear whether such a scenario will actually materialize? “This is an important checkpoint in terms of policy management,” he said.
In its “Outlook Report on Economic and Price Situations” (Outlook Report) released on the 26th, the Bank of Japan describes the year-on-year rate of increase in the Consumer Price Index (Core-Core CPI), which excludes fresh food and energy, which shows more trending trends. The rate was set at 1.9% in FY2012 and FY2015, and 2.1% in FY2016.
Governor Ueda said that the underlying inflation rate is currently still below 2%, and that “we believe that the financial environment will continue for the time being.” He also pointed out that if the Bank of Japan’s outlook is realized, we will be “very close” to achieving a sustainable and stable 2% price increase. In particular, regarding the second half of the outlook period, he said, “If things continue as they are, the policy interest rate will be close to the neutral rate.”
The formula for estimating the neutral interest rate varies depending on the commentator, and there is a wide range of estimates, but he said, “I would like to deepen our knowledge a little more,” and indicated that the Bank of Japan will narrow down the level of the neutral interest rate in the future.
On the other hand, he also said, “If the reality changes, that alone will be a reason to adjust the degree of monetary easing,” in line with the outlook in the outlook report. However, he did not give a clear answer as to when he would be able to make that decision, saying it would be “very difficult.” He also said that if there was a “non-negligible probability” that the outlook would improve, that would be a reason for policy adjustments.
Governor Ueda pointed out, “Over the past 20 to 30 years, the Japanese economy has never experienced a sustained rise in interest rates.” There is uncertainty about the impact of gradual interest rate hikes due to insufficient data accumulation, and while caution is required when deciding on interest rate hikes, “If you do things too slowly, there will be a sudden increase in interest rates.” ), and there is a risk that there will be a shock associated with that,” he said, adding that it is extremely important to strike a balance between the two.
At its monetary policy meeting on the 25th and 26th, the Bank of Japan decided to keep its policy interest rate, the overnight uncollateralized call rate, unchanged at 0-0.1%. Regarding long-term government bonds, he said the policy will be implemented in accordance with the policy decided at the March meeting.
Amid speculation in some quarters that the Bank of Japan may intend to reduce its purchases of government bonds or reduce its holdings, it has been reported that the Bank of Japan will leave policy unchanged, and the yen continues to depreciate in the foreign exchange market. The dollar, which had been hovering around 155 yen, rose to the 156 yen level.
Governor Ueda explained that at the meeting on the same day, there was no particular opposition to continuing to purchase government bonds at 6 trillion yen. Regarding the reduction in government bond purchases, he said, “We are not at a stage where we can say specifically when.”
Yasunari Ueno, chief market economist at Mizuho Securities, pointed out that while the government is struggling with the strong dollar and weak yen, Governor Ueda has not made any comments that threaten the weak yen. He said, “From the perspective of coordinating with the government to keep the yen from depreciating, I get the impression that the Bank of Japan’s response this time has been extremely indifferent.” It was a natural reaction for the dollar/yen to rise above the 156 yen level after the Bank of Japan’s decision was announced, and “the presence or absence of foreign exchange intervention remains a focus of attention.”
After the governor’s press conference, the dollar/yen exchange rate plummeted by about 2 yen, from high 156 yen to low 154 yen. After that, the price went back up rapidly and became a big swing.See more.
(Takahiko Wada, Kentaro Sugiyama)
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