MNI BRIEF: BOJ's Ueda Sees Shift To New Normal From Low Rates

Bank of Japan Governor Kazuo Ueda on Wednesday indicated a shift to a new normal away from low interest rates for a prolonged period, which may lead to a tweak of yield curve control.

“It may be difficult to deny the possibility that we are already in a new normal that is different from the period of ‘low for long,’" Ueda said at the 2023 BOJ-Institute for Monetary and Economics Studies Conference. “In response to demand driven inflation, policy tightening is desirable to reduce excess demand and contain inflation. In response to supply-driven inflation, central banks' decision making faces the difficult dilemma between considerations of economic activity and the need to tackle surging inflation.”

Ueda added supply factors such as a rapid rise in commodity prices, labor shortages and disruptions to supply chains has driven the increase in inflationary pressure, which has also been influenced by demand factors, including the effects of expansionary fiscal and monetary policy measures and pent-up demand following the pandemic.

On the monetary policy review announced in April (see: MNI BOJ WATCH: Ueda Stresses Caution Ahead Of Policy Review), Ueda said the BOJ will review the interaction between the various implemented monetary easing measures and economic activity, prices, and financial conditions, and their impacts drawing on domestic, and international experience.