BoJ’s Ueda: Focus on positive wage-inflation cycle kicking off for gauging stable achievement of price target

Bank of Japan (BoJ) Governor Kazuo Ueda is making a scheduled appearance, addressing the Japanese Parliament – the Diet on Tuesday.

Key quotes

Japan's economy recovering moderately, although some weak data are seen.

Consumption is improving moderately on easing cost-push pressure, hopes for higher wages.

Some firms appear to be delaying investment though capital expenditure plans remain firm.

We have seen various data since January, more data will come out this week so will look at these comprehensively in reaching appropriate monetary policy decision.

We are focusing on whether positive wage-inflation cycle kicking off, in judging whether sustained, stable achievement of our price target coming into sight.

When achievement of 2% inflation stably, sustainably in sight, we will seek exit from negative rates, YCC and other large scale monetary easing steps.

Market reaction

USD/JPY picked up fresh bids on the above comments, spiking to near 147.40 before retracing quickly to 147.25, where it now wavers. The pair is up 0.23% 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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