The Bank of Japan governor says curve control will end when the price target can be expected to be achieved

Bank of Japan Governor Kazuo Ueda said on Tuesday that Japan’s central bank would end its yield curve control policy and begin trimming its balance sheet once the outlook improves for inflation to sustainably peak , the 2% target.

Speaking in parliament, Ueda said the Japanese economy was recovering and inflation expectations remained at high levels.

“We are seeing some positive signs in the inflation trend, including inflation expectations,” the central bank chief said.

“When we are able to predict that inflation will sustainably and stably reach our 2% target, we will relinquish control of the yield curve and move towards reducing the bank’s balance sheet.”

Ueda, however, warned of several uncertainties regarding the outlook, such as whether recent strong wage growth will be sustained and spread to smaller companies.

Controlled by the yield curve, the Bank of Japan sets a short-term interest rate target of -0.1% and limits the 10-year bond yield to around zero as part of efforts to meet its target of prices permanently.

With inflation exceeding the Bank of Japan’s target, markets speculate that Ueda will soon lift curve control, which has drawn public criticism for distorting market prices and squeezing banks’ profits.

Ueda has repeatedly ruled out an immediate interest rate hike, saying the recent rise in inflation has been driven primarily by import costs rather than strong domestic demand.

But at its first meeting since Ueda became president last month, the Bank of Japan scrapped guidelines promising to keep interest rates at “current levels or below”.

He also announced a plan to overhaul his previous monetary policy moves, laying the groundwork for phasing out his predecessor’s massive monetary stimulus program.

Core consumer inflation in Japan hit 3.1% in March, well above the central bank’s target, and an index excluding fuel costs rose at the fastest annual pace in four decades, a sign of growing pressure on prices.

Source: Terra

Rose

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