BoJ’s Ueda: Central bank must take into account Japan’s low real rates in setting policy
Bank of Japan (BoJ) Governor Kazuo Ueda said that a decision on how soon to raise interest rates must take into account the fact that the nation’s real interest rate is low, Reuters reported on Friday.
Ueda added that Japan is facing rising inflation from a “negative supply shock,” which is more difficult to rein in with monetary policy than inflation driven by strong demand. He chose not to comment on market expectations regarding a potential interest rate hike in the April policy meeting.
Key quotes
Having said that, I would note that Japan’s real interest rate is currently low up to the medium-term zone of the yield curve.
We must also take into account the fact Japan’s financial environment is accommodative.
If the economy slows, that would put downward pressure on prices. On the other hand, rising crude oil prices would put upward pressure underlying inflation through inflation expectations.
Taken together, we will make a decision at each policy meeting using data and information available at the time.
Market reaction
As of writing, the USD/JPY pair is up 0.15% on the day at 159.40.
