MNI BOJ WATCH: Kuroda Entrusts Ueda With Achieving 2% Target

Outgoing Bank of Japan Governor Haruhiko Kuroda said he entrusted incoming governor Kazuo Ueda with the achievement of the 2% price target, an outcome that eluded him in his decade-long stewardship of the bank.

“I have been known Mr. Ueda for a long-time ago and used to discuss various issues. Mr. Ueda will pay attention to the economy, prices and financial markets, and I hope Ueda will manage monetary policy in an appropriate manner” to achieve the 2% price target, Kuroda told reporters on Friday after his last policy meeting.

Kuroda said it was regrettable the 2% price target hadn’t been achieved during his tenure, although Japan was no longer mired in a deflationary environment. “There is a sign that norms, such as prices and wages will not rise, will change," he said.

The comments came after the conclusion of a two-day policy meeting, with the Bank of Japan maintaining its -0.1% short-term rate and the 50bp band around its 10-year yield curve target of zero percent. The economy was judged to be moving in line with the bank's baseline scenario despite lingering downside risks and high uncertainties. The board maintained their easy forward guidance, indicating policymakers are vigilant against near-term downside risks.

Kuroda said it was extremely important for the BOJ to maintain easy policy for the time being, not only to create an environment that enabled firms to raise wages but also to achieve the 2% price stability target.

ALL EYES ON UEDA

The focus now shifts to the April 27-28 policy meeting under governor Ueda, with his first appearance coinciding with the release of the Outlook Report that will contain updated medium-term economic growth and inflation forecasts out to fiscal 2025. Ueda, a 71-year old academic, takes office on April 9.

Ueda told lawmakers during confirmation hearings that current BOJ policy was appropriate and that easy policy needed to be maintained as the 2% price target hadn’t been achieved.

However, he telegraphed his willingness to mitigate the side-effects of easy policy, such as impaired bond market functioning, while ruling out an imminent policy tightening. Markets are rife with speculation the BOJ will phase out or abandon yield curve control given Ueda's past criticism of the policy. (See MNI BOJ WATCH: Ueda Pledges Easy Policy, Flags YCC Options)

WAGES IN FOCUS

The outcome of ongoing wage negotiations loom as an early challenge in determining whether Ueda can steer inflation back to the 2% target in a stable and sustainable manner.

Kuroda said major firms are considering raising wages amid a tight labor market and rising cost of living pressures due to inflation, paving the way to achieve the 2% price target.

“The possibility is high that wages will be raised higher than before. But I won't comment further as wage negotiations are underway now,” Kuroda said.

“Wages including basic salary rise are important. But the economic mechanism behind price rises and the outlook for economic and prices conditions are important,” he said.