Written by Leika Kihara
WASHINGTON (Reuters) – Bank of Japan Governor Kazuo Ueda said on Friday it was “very likely” the central bank would raise interest rates and begin tapering its huge bond purchases at some point in the future if underlying inflation continues to rise. Stated.
Ueda said the central bank needs to maintain accommodative monetary policy for the time being, as the underlying inflation rate remains “slightly below” the 2% target and long-term inflation expectations remain near 1.5%. He said there is.
However, the Bank of Japan ended a range of unusual monetary easing measures in March, giving it more flexibility in policy, and could change its short-term interest rate target depending on future data developments, he added. Ta.
“We will proceed cautiously, first assessing the impact of recent policy changes on the economy and inflation, and then considering further adjustments as we deem appropriate,” Ueda said at a seminar hosted by the Peterson Institute. “and perhaps derive some insight about neutral interest rates along the way.” international economics.
Ueda said the Bank of Japan will also begin reducing its purchases of Japanese government bonds (JGBs), but the timing and scale of the reductions have not yet been decided.
“Regardless of what the near-term data looks like, we want to find ways and timing to reduce our bond purchases,” he said, adding that it would take time for the central bank to reach a decision.
This statement has strengthened market expectations that the Bank of Japan will raise its short-term interest rate target from the current range of 0-0.1% by the end of this year.
In March, the Bank of Japan ended eight years of negative interest rates and other unorthodox policies, marking a historic shift from decades of massive monetary stimulus focused on restoring growth and overcoming deflation. I did it.
Markets will be watching the Bank of Japan for clues about the timing of its next interest rate hike when it releases new quarterly growth and inflation forecasts at next week’s policy meeting.
Ueda said the Bank of Japan would keep a close eye on developments in inflation expectations when deciding when to raise interest rates, but would first examine data on wages and how rising wages could affect service prices. .
“If underlying inflation continues to rise, we are very likely to raise interest rates,” he said.
(Reporting by Leica Kihara; Editing by Paul Simao and Andrea Ricci)
