In case you missed it, the BOJ left its policy rate unchanged at 1.25% in a 8-1 vote earlier today. And while the decision in itself was widely expected, the central bank finally moved to declare victory on inflation after a hard-fought battle for more than a decade.
Ueda is now following up on that decision and is arguing that the board is sharing a unanimous view on prices at this juncture. His comments:
- Japan’s economy expected to continue growing moderately
- Underlying inflation at level generally consistent with 2% price stability target, expected to remain at around that level
- All members agreed that underlying inflation has reached 2% target
- Cannot condone underlying inflation from becoming higher
- BOJ will continue to raise policy rate and adjust degree of monetary easing in response to economic activity, prices, and financial developments
- Will consider adjustment of timing, pace on monetary policy while looking at likelihood of achieving baseline scenarios to the economic, price outlook
- Need to monitor risks, financial environment and impact on economy, prices a little more (when asked on why the BOJ chose to hold today)
- However, more important than ever that underlying inflation is not allowed to overshoot 2% target
Well, his comments are certainly leaning more towards the hawkish side but yet the BOJ is not willing to take any action. That pretty much says it all.
The balance of risks has certainly shifted, with policymakers now underscoring the necessity to not let inflation get out of hand. And so the only question now is how willing is the BOJ to step up its game and walk the talk instead of just talking the talk.
Ueda also adds that they will want to be more proactive and will “promptly” adjust policy to steer inflation to 2% rather than “waiting passively”. But again, actions speak louder than words.
December remains very much in play but it is clear that the BOJ wants to keep their options open. The only issue though in waiting too long is that they might miss their timing, even more so when Japan prime minister Takaichi is going to have another opportunity to reshape the board next year. And that could very well make it even tougher for the BOJ to pursue any further tightening measures.
This article was written by Justin Low at investinglive.com.