Interest rates

BOJ’s Kuroda hints at ultra-low interest rate change as future option

  • Kuroda reiterates need to keep rates ultra-low for now
  • Policy adjustment needed if a stable 2% target is in sight
  • BOJ board debated rising inflationary pressure in September – minutes
  • BOJ may adjust YCC next year if economy is strong – ex-BOJ Sakurai

TOKYO, Nov 2 (Reuters) – Bank of Japan Governor Haruhiko Kuroda on Wednesday hinted at the possibility of adjusting the bank’s yield curve control (YCC) policy in the future, saying that this could become a future option if inflation continues to accelerate.

“For now, I see no need to raise interest rates or make any changes to the YCC,” Kuroda told parliament, stressing the importance of supporting the fragile economy with an ultra policy. -lax.

“But if Japan sees an inflation outlook of 2% accompanied by wage increases, an adjustment in monetary policy will of course become necessary,” he said.

This remark will likely keep alive market expectations of a change in ultra-low central bank interest rates when the dovish Kuroda’s second five-year term ends in April next year.

Under YCC, the BOJ is guiding short-term interest rates to -0.1% and the 10-year bond yield around zero as part of efforts to sustainably support inflation at its 2% target.

The BOJ’s relentless defense of its 10-year yield cap caused distortions in the shape of the yield curve, which came under upward pressure from rising global interest rates.

Core consumer inflation in Japan accelerated to a new eight-year high of 3.0% in September, challenging the central bank’s determination to maintain its ultra-accommodative policy as the yen’s fall to its lowest level in 32 years drives up import costs.

Rising inflationary pressures were at the center of discussions during the BOJ’s rate review in September, with some board members pointing out that companies’ pricing behavior could change as a growing number companies are raising prices, according to the minutes of Wednesday’s meeting.

“We must humbly observe without any pre-defined idea the risk that inflation will significantly exceed expectations, including due to the impact of currency movements,” said a quoted member.

“When the time is right, it’s important to communicate to the markets an exit strategy (from the ultra-easy policy),” according to another comment quoted in the September minutes.

The BOJ’s decision to maintain its ultra-low rate targets at the September 22 meeting and Kuroda’s dovish remark at a briefing sent the yen down sharply, later prompting the government to intervene in the bond market. currencies to support the yen.

Former BOJ board member Makoto Sakurai, who is a close aide to Kuroda, said the central bank could shift its yield targets next year if the economy maintains solid growth.

“If Japan can achieve economic growth of around 1.5% to 2% next year, the BOJ may make slight adjustments to control the yield curve,” Sakurai told Reuters in an interview. “But BOJ policy, overall, will remain accommodative.”

The BOJ remains an exception among a global wave of central banks tightening monetary policy as it focuses on reviving a fragile economy with aggressive stimulus measures.

The yen weakened sharply against the dollar as markets focus on the divergence between the BOJ’s ultra-accommodative policy and US interest rate hikes.

Reporting by Leika Kihara; Editing by Tom Hogue and Sam Holmes

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