MNI BOJ WATCH: Ueda Pledges Easy Policy, Flags YCC Options

Bank of Japan governor nominee Kazuo Ueda said shortening the long-term interest rate target may be an option that emerged from a review as he pledged to maintain easy policy to ensure the 2% price target was achieved in a stable and sustainable manner.

Ueda, who will replace Governor Haruhiko Kuroda on April 9, told a Lower House steering committee that easy policy should be maintained to ensure the 2% target came within sight, adding recent inflation data had been favourable. A move to normalise policy would be considered if the inflation target came into sight, he said without elaborating on the timing.

“I would like to make utmost efforts to cultivate the seed for the time being”, Ueda said, referring to the ongoing use of easy policy amid signs of a trend towards a more stable and sustainable level of inflation. (See MNI BRIEF: Japan's Jan Core CPI Rises 4.2% To 41-Year High)

Ueda said he would like to implement a comprehensive policy review after taking office. While Ueda didn’t rule out policy tweaks, he didn’t elaborate on the possible pace or sequencing of any changes.

"(The BOJ) will review or examine monetary policy if necessary after discussions with other policy board members,” Ueda said.

However, he didn't see the need to change the time horizon of the 2% price target agreed to in a joint statement between the BOJ and the government in 2013.

YCC TWEAKS

The focus among market participants has been on possible changes to the yield curve control policy after the BOJ shocked markets in December by widening the band around the 10-year yield target to 50bp from 25bp.

Ueda, who had previously been critical of the policy, said shortening the long-term interest rate target and widening the band around the 10-year yield target would be options considered in a review of the policy. (See MNI POLICY: Ueda's YCC Concerns Hint At BOJ Policy Shift)

“There are other options but I won’t touch on them now,” Ueda said, declining to comment further because because he was wary that any reference to concrete options could invite unnecessary moves in financial markets.

Ueda said the biggest goal was to achieve the 2% price target in a stable and sustainable manner. “If the target was achieved, the BOJ will decide to stop buying a large scale of government bonds as a natural consequence." However, he ruled out the option of government bond sales as part of an exit strategy from easy policy.

INFLATION VIEWS

Ueda offered a cautious view on the outlook for prices, saying the rise in Japan’s inflation rate appeared to have peaked in January and that it will fall considerably in or after February.

He also echoed the BOJ view that the year-on-year rise in core consumer price index will fall below 2% towards the middle of next fiscal year.

“The BOJ should manage monetary policy based on the outlook for economy and prices as there is a time lag in monetary policy affects economy and prices,” Ueda said.

The BOJ should not take policy action to address high prices caused by the rise in import prices. If the BOJ addressed such a price rise, it will worsen the economy, Ueda said.

Ueda said that he would like to minimise the financial market shock caused by possible policy changes by clearly explaining the link to any policy shift to the outlook for growth and inflation in a simple and plain manner.