Bank of Japan (BOJ) Governor Kazuo Ueda recently addressed his first post-policy meeting conference, in which he highlighted the need to continue monetary easing efforts in order to achieve a 2% inflation target alongside wage growth. Ueda also noted that he will not hesitate to ease monetary policy further if necessary.
The governor elaborated on the BOJ’s decision to update its forward guidance given the changes in the government’s classification of COVID-19, which has helped lower the risk of the pandemic’s impact on the economy and markets. Furthermore, Ueda discussed the central bank’s intention to conduct a broad-perspective review of monetary policy to deepen understanding of past policy conducts and better inform future policy decisions. The review will not be aimed at conducting specific policy measures or changes in the future.
Ueda expressed hope for stable and sustainable inflation and also revealed that the policy review would include input from external members. Although the review period was slated for 1 to 1-1/2 years, the governor clarified that it does not mean there will be no policy changes during that time. In fact, the policy could be changed as needed during the review period, and the results of the review could be announced in the interim if necessary.
The governor reassured that there does not necessarily need to be no policy change during the 1 to 1.5-year review, as policy shifts should be carried out if necessary. Ueda explained that a policy shift could happen in the next 1.5 years, as the chance of the underlying inflation rate reaching 2% is “not zero”.
Despite the effectiveness of monetary easing efforts over the past 25 years in achieving some economic growth, it has not been successful enough in terms of reaching the 2% inflation target. As a result, the BOJ is committed to extending its easing policy to ensure sustained and stable inflation is achieved in the future.
Ueda’s comments have prompted a market reaction, with the USD/JPY extending its rally toward 136.00, currently trading 1.18% higher on the day at 135.50. As the COVID-19 pandemic continues to impact global economic recovery, monetary policy will undoubtedly remain a crucial tool in combating downturns and ensuring stability.
In closing, it is clear that the BOJ is dedicated to maintaining monetary easing efforts in order to reach its 2% inflation target, and is prepared to make adjustments to its policy as needed during the review period. The bank, under Governor Ueda’s leadership, is carefully monitoring the market response and will be proactive in implementing changes necessary to achieve sustainable and stable inflation rates in Japan.
