MNI BOJ WATCH: Ueda Stresses Caution Ahead Of Policy Review

The Bank of Japan will conduct a review of its monetary policy which could take up to 1-1/2 years, but while it could alter policy before its conclusion, it will be very wary of the impact of premature tightening on prices, Governor Kazuo Ueda said on Friday after the conclusion of its policy meeting.

“Monetary policy will be decided at each policy decision meeting, and the BOJ will manage monetary policy in a flexible manner, depending on developments in economic and price conditions,” Ueda told reporters after the meeting in which the BOJ decided to keep its policy settings unchanged but modified its forward guidance.

The yen and Japanese government bond yields fell after the meeting, which had been preceded by some speculation that the BOJ could adjust its yield curve control policy.

Premature tightening could scuttle chances of achieving the BOJ’s 2% inflation target, Ueda said.

“The underlying price trend will likely strengthen in a projection period, but it takes time to achieve the 2% price target and the BOJ needs to patiently continue easy policy,” Ueda said.

WAGES, PROFITS

While the outcome of next year’s wage negotiations and the course of corporate profits will be crucial, the BOJ could still make a policy move earlier if it felt it could sustainably achieve its price target, he added.

“Wage negotiations next year are important. But this doesn’t mean that the BOJ have to wait until wage negotiations next year,” he said.

Ueda said he had no preconceptions ahead of the policy review, which will include consultations with outside academic experts, and that the BOJ could announce initial results before it is concluded.

“We would like to analyse past policy and send the necessary message to markets in a balanced manner,” he said.

But Ueda downplayed chances of any imminent policy shift.

“We will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions,” he said.

At the meeting, the BOJ board modified its forward guidance, removing a phrase saying that policy rates would "remain at their present or lower levels", though Ueda said that this did not mean that the BOJ had switched toward neutral or tightening phase. It also removed “monitoring the impact of Covid-19”, after the government downgraded its classification of the virus to Class 2, the same level as seasonal flu.

The board’s median forecast for core CPI in fiscal 2025 – its first forecast for the year –stood at 1.6%, far from the 2% target. The median forecast for fiscal 2024 was revised to 2.0% from 1.8% in January. The median forecast this fiscal year was revised up to 1.8% from January’s 1.6%.

“Risks to prices are skewed to the upside for fiscal 2023 but are skewed to the downside for fiscal 2025,” the BOJ said.