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<\/a><\/p>\nBy Leika Kihara and Tetsushi Kajimoto<\/p>\n
TOKYO (Reuters) – Japan’s new central bank governor Kazuo Ueda said it was appropriate to maintain the bank’s ultra-loose monetary policy for now as inflation has yet to hit 2% as a trend, suggesting he will be in no rush to dial back its massive stimulus.<\/p>\n
But Ueda said the Bank of Japan (BOJ) must also avoid being too late in normalising monetary policy, a sign he will be more open to the idea of tweaking its controversial bond yield control policy than his dovish predecessor Haruhiko Kuroda.<\/p>\n
“If the BOJ suddenly realises that inflation will stably and sustainably hit 2% and decides to normalise monetary policy, it will have to make very big policy adjustments,” Ueda said in an inaugural news conference on Monday.<\/p>\n
“That will cause big disruptions in the economy and markets, so it’s important to make pre-emptive and appropriate decisions,” he said.<\/p>\n
While there are growing signs that Japan can see inflation sustainably heading towards the BOJ’s 2% inflation target, more time is needed to scrutinise whether wages will keep rising, he said.<\/p>\n
“When looking at current economic, price and financial developments, it’s appropriate to maintain yield curve control for now,” Ueda said.<\/p>\n
The 71-year-old academic’s term began on Sunday, succeeding Haruhiko Kuroda, whose second, five-year term ended on Saturday.<\/p>\n
Markets have been rife with speculation the BOJ could soon phase out yield curve control (YCC), a policy that caps the 10-year bond yield around zero, due to growing criticism that it distorts markets and hurts banks’ margins.<\/p>\n
The dollar extended its gains against the yen to hit 133.055, the highest since April 4, on receding expectations of a near-term tweak to Japan’s ultra-loose monetary policy.<\/p>\n
“Ueda signalled that inflation and economic conditions did not warrant a big rise in interest rates,” said Shingo Ide, chief equity strategist at NLI Research Institute. “The chance of a policy tweak in April has diminished significantly,” he said.<\/p>\n
PRICE TRENDS HOLD KEY<\/p>\n
If the BOJ sees that it can achieve its price target, it might need to normalise monetary policy, Ueda said. “If not, we may need to come up with a more sustainable framework with an eye on the side-effects of monetary easing.”<\/p>\n
Ueda faces a bumpy road as slowing global growth clouds the prospects for a sustained pickup in inflation and wages, a prerequisite for phasing out his predecessor’s controversial monetary stimulus.<\/p>\n
Growing fears of a U.S. recession are among headwinds for Japan’s export-reliant economy. While the end to COVID-19 curbs is propping up consumption, some analysts warn a recent slew of price hikes for daily necessities could also hurt spending.<\/p>\n
Ueda said he was mindful of the side-effects of prolonged easing and stressed the need to ensure Japan’s banking system remains sound.<\/p>\n
He also said it was hard to commit to a set timeframe in achieving 2% inflation, suggesting that he would shift away from Kuroda’s strong focus on hitting the price goal.<\/p>\n
But the BOJ must sustain Kuroda’s stimulus programme for the time being, including YCC, remarks that diminish the chance of a policy shift at this month’s policy meeting.<\/p>\n
Long-stagnant inflation and wage growth in Japan are beginning to show signs of reviving. After touching a 41-year high of 4.2% in January, core consumer inflation remains above 3% as more firms hike prices in response to rising raw material costs.<\/p>\n
To compensate households for the increase in living costs, major firms have offered wage hikes of nearly 4% this year in annual labour talks, the fastest pace in about three decades.<\/p>\n
Ueda will chair his first policy meeting on April 27-28, when the board produces fresh quarterly growth and price forecasts extending through fiscal 2025.<\/p>\n
Markets are focusing on whether the board projects inflation accelerating towards, or even hitting, 2% in fiscal 2024 and 2025.<\/p>\n
Under current forecasts, the BOJ expects core consumer inflation to hit 1.6% for the fiscal year that began this month and accelerate to 1.8% the following year.<\/p>\n
Ueda served as BOJ board member from 1998 to 2005, when the central bank introduced zero interest rates and quantitative easing to combat deflation and economic stagnation.<\/p>\n
\n(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Yoshifumi Takemoto; Editing by Sam Holmes, Toby Chopra and Hugh Lawson)<\/p>\n
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