BoJ’s Tamura: Can't say decisively now how much BoJ will hike rates

Bank of Japan (BoJ) board member Naoki Tamura is back on the wires, via Reuters, on Wednesday, making some comments on the central bank’s interest rate outlook.

Key quotes

We will set short-term rates at appropriate level while scrutinising economic, price and financial developments.

Can't say decisively now how much BoJ wll hike rates.

Don't think we will be raising rates as fast as the US central bank.

If economy weakens, we will conduct appropriate monetary policy as needed including negative rate, YCC.

Can't say exactly when but direction is for BoJ to move toward reducing amount of bond purchases.

Won't hike rates solely for purpose of recovering market function.

Will focus on price, wages, consumption and corporate price-setting behaviour, when asked about future monetary policy guidance.

There is no set formula, when asked about additional rate hikes.

If upside risks to trend inflation, price outlook heighten, or likelihood of stably hitting price goal rises further, we may be able to hike rates again.

Risk of inflation overshooting sharply, requiring rapid monetary tightening, remains low.

Will not comment on specific FX moves

It is desirable for FX to move stably reflecting economic fundamentals.

Promising to continue with accommodative monetary policy won't necessarily conflict with need to raise interest rates.

If positive economic cycle were to strengthen, I am hoping we can raise interest rates to levels where market function recovers.

Market reaction

USD/JPY was last seen trading at 151.75, adding 0.14% on the day.

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

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.

How do Bank of Japan’s decisions influence the Japanese Yen?

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.

Is the Bank of Japan’s ultra-loose policy likely to change soon?

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.

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