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By Hiroshi Inoue
TOKYO (MNI) - Bank of Japan officials see no need to strengthen forward
guidance, despite some speculation in financial markets that the central bank
could tweak the wording in coming months, as the bank believes the current
wording is adequate, MNI understands.
The BOJ has vowed to maintain the current extremely low levels of short-
and long-term interest rates "for an extended period of time, taking into
account uncertainties regarding economic activity and prices including the
effects of the consumption tax hike in October 2019."
A strengthening of forward guidance ahead of the government's October
consumption tax hike is one of the policy options open to the BOJ if it needs to
expand its easy policy.
MNI understands that although the tax hike is one possible reason to extend
easy policy for a longer period, the overriding factor remains "uncertainties
regarding economic activity and prices."
According to the insider, those uncertainties "will continue after the tax
hike" and its highly unlikely the BOJ will unwind policy in the immediate
aftermath of the hike as it will need to monitor developments.
The BOJ has committed to expand the monetary base until core CPI settles
above 2%, the "overshooting commitment," but it hasn't commit to raise and lower
policy interest rates.
BOJ officials are uneasy over extending forward guidance considering the
high level of uncertainties around prices, as they are still unsure how best to
deal with the accumulated costs from the prolonged easy policy.
The BOJ is closely eyeing how the U.S. Federal Reserve goes about a review
of the policymaking processes.
The Fed, not even close to considering Japanese-style 'easy policy', is
holding a conference in Chicago in early June to review of their current
framework for monetary policy, policy strategies and policy tools.
But there is concern at the BOJ as to how the Fed -- and therefore the BOJ
-- will have to react to a further slowdown in the global economy.
If the Fed lowers the fed funds rate and reimplements quantitative easing,
it will push the yen higher, prompting the BOJ to increase the monetary base to
ease that upward pressure.
Another person familiar with BOJ thinking said if Fed action pushed the yen
higher, the BOJ would have to mirror their action to curb the rise.
"A stronger yen is the most troublesome factor for Japan's economy and
consumer prices. A strong yen will lower import price and increase downward
pressure on consumer prices," a person who is familiar with BOJ thinking said.
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