Bank of Japan board member Seiji Adachi speaking.
Conditions are already in place for the BOJ to start normalizing monetary policy.In normalizing monetary policy, the BOJ must take rate hikes in several stages.In normalizing policy, the BOJ must avoid drastic policy change that could stoke fear of a return to deflation.The BOJ will raise rates at a very moderate pace, maintaining an accommodative financial environment, until underlying inflation stably and sustainably hits 2%.Hiking rates at a rapid pace after the inflation target is met could cause a big shock to the economy.The BOJ should raise rates in several stages to achieve smooth policy normalization.Even when the BOJ raises rates, it must maintain an accommodative financial environment, meaning the real policy rate should stay below the natural rate of interest.At present, there is no need to raise rates rapidly to curb inflation.The BOJ must avoid a premature rate hike, using conservative estimates when gauging Japan’s natural rate of interest.Japan’s current real policy rate is sufficiently below the natural rate, meaning an accommodative financial environment remains in place.
If chance of underlying inflation exceeding 2% heightens, BOJ will
raise its policy rate at pace exceeding rate of inflation
If inflation
moves sustainably, stably around 2%, BOJ can guide monetary policy in
a way allowing for policy rate to move roughly in line with neutral
rateUncertainty over the outlook means cannot project a specific level of the neutral rateConsumption is moving in line with the trend projected by the BOJOutput, exports and Capex are firm, but the corporate sector appears to be lacking
Cannot ignore overseas economic uncertainties for time beingReversal of yen
weakness may intensify, put downward pressure on consumer inflationI am somewhat
cautious on whether firms will continue sufficient wage hikes next
yearGiven global
uncertainties, we must scrutinise developments in next year’s wage
talks
His comments started off gung-ho on rate hikes but lost some gusto towards the end with a few caveats.
This article was written by Eamonn Sheridan at www.forexlive.com.
