BoJ’s Ueda: July rate increase aligns with the Bank of Japan's economic expectations

The Bank of Japan (BoJ) Governor Kazuo Ueda responded to a parliamentary question on Friday, saying that the Japanese economy is moving in line with price target protections. Ueda further stated that he will closely watch the market moves with a sense of urgency as uncertainties remain.

Key quotes

Sees stocks recovering from mid-August onward.

Adjusts overblown concerns about the US economy.

To monitor markets with high urgency.

Sees financial markets in unstable conditions.

July rate increase aligned with the Bank of Japan's economic expectations.

Emphasizes the need for clear communication of the bank's policies.

To maintain cautious communication.

Expects to adjust policy if economy moves as planned.

Maintains stance on adjusting easing measures with increased certainty.

To maintain close collaboration with government.

Believes policy adjustments have been appropriate.

The BoJ's policy path to a neutral interest rate remains highly uncertain.

Japan's short-term interest rate is still very low, so if the economy is in good shape, the BoJ will move rates up to levels deemed neutral to the economy.

There is very high uncertainty on where Japan's policy rate might eventually rise.

Market reaction to the BoJ’s Ueda speech

At the time of writing, USD/JPY is trading 0.33% lower on the day to trade at 145.82.

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. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.

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