The yen fell on Monday after new Bank of Japan governor Kazuo Ueda signalled he would for the time being stick to the ultra-loose monetary policy overseen by his predecessor over the past decade.
In his first news conference as head of the BoJ, the 71-year-old economist stressed that the two pillars of Japan’s current monetary policy — negative interest rates and yield curve control — remained appropriate under current economic conditions.
Ueda, professor emeritus of the University of Tokyo with a PhD in economics from Massachusetts Institute of Technology, became the first academic to take the helm of the BoJ after he took over from Haruhiko Kuroda on Sunday.
The change in leadership came as investor expectations had been building that Ueda would respond to the highest inflation rate for four decades by gradually pivoting away from Kuroda’s policy of capping long-term government borrowing costs.
Ahead of his first monetary policy board meeting later this month, markets had focused on how quickly the new BoJ governor would move to revise or abandon its policy of buying as many bonds as needed to keep 10-year bond yields close to zero. But Ueda signalled the purchases would continue.
“In light of the current economic, price and financial conditions, it is appropriate to maintain the yield curve control for now,” he said.
The comments sent the yen down as much as 1 per cent to ¥133.4 per US dollar. The currency remains well above the 30-year low of more than ¥150 it hit last year as a growing gulf between Japan’s rock-bottom interest rates and those elsewhere in the developed world hammered the currency.
It rebounded in December after the BoJ said it would allow 10-year Japanese government bond yields to fluctuate by 0.5 percentage points above or below its target of zero, relaxing the previous band of 0.25 percentage points. It has since gained further as investors bet that US interest rates are close to peaking.
Even so, investors have continued to challenge the central bank to bow to global inflationary pressures and relax the yield ceiling further, or even scrap it.
While the BoJ remained the last major central bank to maintain negative interest rates as its global peers tightened policy to rein in inflation, Ueda also expressed support for the policy, noting that Japan needed to move closer towards sustainably achieving its 2 per cent inflation target.
Japan’s core consumer price index, excluding fresh food prices, rose at a rate of 4.2 per cent in January but has since slowed to 3.1 per cent in February after government subsidies to curb electricity and gas prices kicked in.
The BoJ has argued that easing measures are needed to support the economy since the country’s inflation is not driven by underlying strong consumer demand and will slow as the cost of imported commodities falls.
The news conference came shortly after Ueda met Prime Minister Fumio Kishida. According to Ueda, they agreed there was no need for now to revise an existing accord between the government and the central bank, which commits the BoJ to achieving the inflation target “at the earliest date possible”.
Asked whether the BoJ’s inflation target would be achievable during his five-year term, Ueda pointed to the robust outcome of this spring’s wage negotiations, which delivered bigger than expected pay rises to workers at large companies.
“We are starting to see positive developments around wages and if this continues, I think there is enough possibility that this would lead to a more stable 2 per cent inflation,” he added.
Turmoil in the global financial markets triggered by the collapse of US lender Silicon Valley Bank and the sale of Credit Suisse to Swiss rival UBS has also complicated the task for the new BoJ governor.
While Ueda said the impact on Japan’s economy and financial system was limited, he warned that “the uncertainty has not gone away completely”.
