MNI BRIEF: Faster Policy Adjustments Possible - BOJ's Adachi

Bank of Japan board member Seiji Adachi said on Wednesday that the Bank could need to adjust the degree of easy policy through rate hikes faster than previously thought.

“If the weak yen accelerated or if it is prolonged, there is the possibility that the year-on-year change of consumer price index would reverse earlier than expected," Adachi told business leaders in Kumamoto City. "If this happened, the BOJ may need to quicken the pace of adjusting the degree of easy policy.”

However a faster rate of policy tightening would dampen the economy, he added. While the probability of achieving the 2% price target stably had increased, Adachi's confidence of hitting the target remained low and the BOJ needs to continue with accommodative financial settings, he noted.

“It is important (for the BOJ) to maintain real interest rate in negative territory,” he said.

He warned the BOJ must weigh the downside risks to the economy against that of accelerating price rises, which would necessitate rapid tightening.

As for government bond buying, Adachi said gradually reducing the scale of purchases would be ideal, taking the bond supply-demand and functioning and liquidity into consideration. (See MNI POLICY: BOJ Board Weighs Pace, Scale Of JGB Reductions)