MNI: BOJ's Uchida Commits To Hikes, Flexible Bond Buying
MNI (TOKYO) - The Bank of Japan will continue to raise the policy interest rate and adjust the degree of monetary accommodation, Deputy Governor Shinichi Uchida said on Wednesday, failing to offer a timeline.
Pointing to heightened geopolitical tension, Uchida told business leaders in Shizuoka City, "the future course of these factors and expectation regarding them will have an impact on business and household sentiment, not only in the U.S. but also around the world, and on developments in global financial and capital markets.”
“Uncertainties regarding the global economy remain high, and due attention continue to be warranted here,” he added.
Actual inflation and underlying inflation are expected to be at around 2% in the second half of the projection period of the January Outlook Report, Uchida continued.
“The policy interest rate at that time is considered to approach an interest rate level that is neutral to economic activity and prices,” he said. “In the theory, this level is 2% plus the natural rate of interest. However, while the natural rate of interest is conceptually an important criterion for distinguishing between monetary easing and tightening, estimates of the natural rate of interest rate range from a minimum of around minus 1% to a maximum of around plus 0.5%, depending on the estimated method,” he said.
Uchida added the bank will examine the response of economic activity and prices as it raises the policy interest rate, and "the bank does not know for certain what the interest rate level that is neutral to economic activity and prices will be.”
“I think that it will be possible for the BOJ to proceed while examining the response of economic activity if it raise the policy interest rate at a pace in line with expectations,” Uchida said.
BOND BUYING
“Long-term interest rates are to be formed freely in financial markets, and the BOJ expected that the rates would fluctuate to some degree in response to factors such as market view of economic activity and prices and developments in interest rates overseas,” Uchida noted, pointing to long-term rates.
However, he said that the BOJ will conduct operations, such as increasing bond buying, in a flexible manner, if long-term interest rates rise sharply.